The FSA is consulting (as it is required to do under the Act) on the new power given to the FCA under the Financial Services Act 2012 to issue temporary product intervention rules without the chore of a consultation (CP12/35).
Such rules cannot be in force for more than 12 months – but that alone is far from an adequate safeguard when the rules we are talking about include banning a product from sale.
So, what more is needed to allay concerns that it will be used inappropriately?
1. More certainty….
- That the power will only be used when alternative solutions have been exhausted.
- That temporary rules will be issued sparingly – the consultation paper states that this power is not expected to be used “regularly”, yet this assurance does not appear in the proposed statement of policy.
- That the rules, once issued, will be properly assessed to ensure they are working as they were expected to and there are no unintended consequences. The proposed statement of policy (paragraph 44) says that the FCA “may choose to review a temporary product intervention rule during the term for which it is in force” (emphasis added). There needs to be a greater commitment on the part of the FCA here.
2. More clarity….on when the power will be used
- In relation to use in connection with the consumer protection objective, the consultation paper says that the power may be used in relation to “issues….which are deemed likely to cause significant consumer detriment if left unaddressed for the time it would take to consult”. But what is “significant consumer detriment”? In particular, what is “significant” (and what is not)? And why does the proposed policy statement not include the word “significant” (paragraph 9)?
- In relation to use in connection with the competition objective, the consultation paper talks about invoking the power to issue these rules “where the FCA observes urgent and significant problems which are unlikely to be corrected by the market”. But it offers no real guidance on when such problems might be deemed to be sufficiently “urgent and significant” for immediate action to be required.
- How will the FCA decide which type of rule to issue? – something much less draconian than a ban may be the proportionate response to a particular issue.
- How will it decide whether to include an unenforceability provision?
- Where rules are issued on the basis of poor value for money, how will value for money be assessed?
Of course the FCA cannot make a statement of policy which covers every eventuality. An alternative would be to create a more robust governance framework around the making of rules under this power, including checks and balances on the use of the power (before it is exercised) and the involvement of people with the appropriate expertise in the process (for example, those with competition expertise). The proposal in the draft statement of policy (which describes a working group and a committee, reporting to the FSA Board) does not give adequate comfort about the robustness and transparency of the process.
3. More transparency….in circumstances where the power has been used
- It is not adequate for the FCA simply to publish a statement on its website explaining why a rule has been introduced. Given the potential significance for firms and consumers alike, greater transparency and publicity is needed.
- And there is no room for ambiguity when it comes to explaining which products are affected (and which not) and the impact of the new rules on existing as well as prospective customers. A commitment to precision is needed.
Of course no one wants a repeat of the PPI saga and this power may help avoid such an episode happening again (although needless to say it is not enough on its own), but the statement of policy, as proposed in CP12/35, simply does not give sufficient reassurance that this potent new power will be used only as necessary.