Intervention and Enforcement
A key consultation point relates to the FCA’s intervention framework, which it applies to decide on the priority and type of intervention required. Where a market has a high concentration of vulnerable consumers, FCA intervention is more likely, and the type of intervention is likely to involve interventions that change provider behaviour or introduce measures to increase competition. The FCA will from time to time review who it deems vulnerable. However it recognises that low income exacerbates vulnerability and that some retirees have become vulnerable due to pension changes.
Also, FCA enforcement is primarily focused on deterrence but also underlining the value of the breached rule and building market and public confidence. The FCA recognises that it needs to be clearer. For example, the term “referred to Enforcement” is often misunderstood to suggest that an enforcement outcome (e.g. a fine) is inevitable. In addition, the use of private warnings will be reviewed.
Duty of Care
Another consultation point is whether there should be a “duty of care” rule. There have been previous discussions on whether a “duty of care” should be introduced to strengthen a consumer’s ability to take civil action against firms for a breach of the FCA’s rules or for class actions. Although the FCA has previously argued, and remains of the view, that a duty of care rule is unnecessary, it is consulting on this point, and whether such a duty will help define the responsibilities of product providers and intermediaries or advisers.
Behavioural Economics and Big Data
In addition, the FCA mentions two meaty topics that it has covered in recent years.
- Behavioural economics - the FCA wants to play a greater role in helping consumers make decisions by “changing the way firms present choices to consumers” and encouraging consumers to make more appropriate decisions. If required, the FCA will exercise significant intervention, such as restricting products or pricing.
- Big Data - the FCA reiterates its concerns over the use of Big Data which can lead to price discrimination based on the different price sensitivities of different consumers.
Lastly, the Mission highlights the FCA’s limitations:
- The FCA will be limiting its focus on unregulated activities and will only intervene outside of its perimeter in very specific circumstances;
- There is an acknowledgement that it is not realistic to expect that consumers will never lose money or that firms will never fail; and
- There is recognition that regulators can take a preventative approach to regulation but, even then, it is unlikely that no bad outcomes will ever occur and that the cost of such regulation can exceed the benefits.
The Mission sets out how the FCA is prioritising its resources and setting out the FCA’s views on how to regulate the financial services industry. Firms should consider whether they agree with the FCA’s priorities and views, and if not, consider submitting comments to the consultation by 26 January 2017.