Interviewer (Simon Lovegrove): Hello and welcome to the latest Financial Services Fireside Friday. In this Fireside Friday we’re going to look at recent developments concerning the Government’s proposals for regulatory reform. The Financial Services Bill has recently finished its passage through the House of Commons and has now made it to the Lords. The second reading is expected on 11th of June. Jonathan, starting off what have been the main changes to the Bill?
Interviewee (Jonathan Herbst): Very few, in fact. I mean the Government’s basic line has been that all of the key issues have been discussed both in the Joint Committee and the Treasury Select Committee and in the various consultations. So, you know, whilst they’ve taken some of the thinking on board they haven’t actually made any substantive amendments really.
Interviewee (Peter Snowdon): I think one thing which is interesting is what’s happening with consumer credit. We know this Government has been interested in moving consumer credit across to the FCA. What we are now going to see is a consultation next year, 2013, and also impact assessment and that puts us on a timetable for seeing consumer credit shift across to the FCA, probably in 2014.
Interviewee (Jonathan Herbst): The other thing is if the first Financial Services Markets Bill is anything to go by, there’ll be more substantive discussion in the Lords. This doesn’t necessarily mean the Government will move on many things but that it could have a much tougher time on some of the issues.
Interviewer (Simon Lovegrove): The FSA has also produced a number of papers this May, in particular the one concerning PRA designation. This has been somewhat of an evolution starting from the February 2011 Treasury Paper and then we saw the draft Designation Order. Peter, to start off with do you want to fill in a bit of the policy background?
Interviewee (Peter Snowdon): Yes, I mean, I think we’ve seen the policy develop on this so we had a focus initially on risk to the stability of the financial system and the effect on PRA firms within a group and then we saw the focus shift more to being a focus on 730k firms and rather than the sort of the wider test.
Interviewee (Peter Snowdon): And Jonathan do you want to fill in some of the key points regarding the paper?
Interviewee (Jonathan Herbst): I mean the first thing is what Peter just said, which is it will only be 730k full scope investment firms so it’s going to be a sub-category of them and just pausing there, that’s interesting in terms of issues like some of the Lehmans questions, MF Global where, you’ve got issues around what systemic risk those firms actually pose, so that’s the first thing. The second thing is within the 730k category they’re going to look at a number of issues, most of which are fairly obvious, you know, systemic significance, size of assets, revenues, significance within the group and various other things like that. I think to be honest it looks to us like it’s going to be a case by case kind of test. The large firms will kind of, in quotes, know they’re in. I think at the edges there are going to be some discussions. Final thing to note is on shadow banking. I think that’s of course left to the Treasury to then change the designation or if they wanted to bring in a category of firms beyond the 730k.
Interviewer (Simon Lovegrove): One of the things I thought was interesting is that the paper’s been produced to enhance Parliamentary scrutiny of the provisions. I thought it was somewhat light and I think it will be somewhat of a moving feast as it carries on.
Interviewee (Jonathan Herbst): Yes, I think that’s right. I mean as far as we understand it, it will be a case by case analysis.
Interviewer (Simon Lovegrove): OK. Two other papers which have been produced, one dealing with super complaints and the other one dealing with temporary product intervention rules. Jonathan do you want to start off and just tell us a bit more about the temporary product intervention rules paper?
Interviewee (Jonathan Herbst): I mean that’s an interesting one. The first thing to say is that it just fleshes out what’s in the Bill which is going to be this twelve month temporary intervention power, fairly circumscribed and what they go into are the factors that are going to be involved and it’s essentially situations where there wouldn’t be time for consultation, the consumer detriment is too great, impact on the system is too great, etc. etc., all obvious stuff. I think what’s really interesting is one shouldn’t think of this as an isolated power. It’s part of the new approach to product intervention which will also be done through normal own initiative powers, longer term product intervention type rules, longer term intervention. I think basically it’s just a back-up power and the other thing is there will be many, many occasions when the FCA will not actually use its new powers but the mere threat of them will be very significant for the industry. So I think it’s very interesting to see it in the broader context of, you know, prospective proactive regulation, rather than reactive regulation.
Interviewer (Simon Lovegrove): Peter, what are your thoughts on the super complaints paper?
Interviewee (Peter Snowdon): Well, I think a key point to note it’s that it’s early days. These are draft guidelines and they’re not designed to cover everything. They’re designed to cover the sort of main aspects of what should be taken into account when considering whether a super complaint is appropriate and what sort of things ought to be covered and so on, that’s the first point. The second point I think it’s worth noting is that the FSA acknowledges this is early days and it’s likely that the FCA will be developing its thinking on super complaints as it goes along. So I think where we are now is very much the starting point and we can anticipate that this will develop over time and it’s something that firms I think will need to keep a close eye on.
Interviewee (Jonathan Herbst): What I found really interesting about it was that there’s also that reference in there, that link to the competition objective which I think is something that of course is new and is significant in terms of how the super complaint procedure is going to be used. I think it’s something the industry needs to watch, links back to product intervention as well.
Interviewer (Simon Lovegrove): That concludes this Financial Services Fireside Friday. Bye-bye.
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