04 May 2007
Treasury ministers will consider reviewing the Financial Services Authority's consumer protection obligations after controversially excluding these from an independent study of the regulator's role.
The study, commissioned by the Treasury and published by the National Audit Office on April 30, considered the FSA's first five years managing the financial services market. It concluded that the regulator had been largely successful, and already enjoyed a solid reputation across the City.
But its consumer protection remit was excluded at the insistence of the Treasury, despite recent high-profile mis-selling and pensions scandals. The FSA was criticised for a lack of leadership following the mis-selling of endowment polices, for example.
However, a senior Treasury source told Public Finance: 'It is possible that a review of consumer protection issues will follow.' The economic secretary to the Treasury, Ed Balls, would make the final decision, he said.
Consumer groups said the exclusion of consumer protection meant that the NAO study was 'welcome but incomplete'. They said that comprehensive assessments of the regulator should be statutory.
Emma Bandey, personal finance officer at consumer lobbyists Which?, said: 'We want the FSA to become more accountable for what it does [on consumer protection], and an obligatory NAO study would be a great mechanism.'
NAO report author Ed Humpherson urged the Treasury towards improved transparency. 'The FSA will need to demonstrate its success in achieving positive outcomes for consumers and markets,' he said.
Humpherson found that the FSA, which merged the work of 11 disparate regulators when it was set up in 2001, performed well in monitoring potentially high-risk organisations, in performance management and in working with other UK regulators. But it had little idea of how much its different activities cost and needed to work more closely with the Office of Fair Trading and do more to tackle financial crime.
Humpherson concluded that the organisation was 'rich in process' but needed to 'become a more principles-based regulator… focused increasingly on outcomes'.
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