Rules governing how consumer finance is regulated could be due for a big shake-up as the Financial Conduct Authority after ‘most’ respondents to a consultation said the current system is not working.
Among the majority of replies to a call for feedback highly critical of the current framework, the most common suggestion was that the FCA needed to act ‘more readily’ when it suspected wrongdoing.
In a statement, the regulator said: ‘Some told us our current approach, which they described as prescriptive and overly rules-based, encourages firms to adopt a “tick-box” compliance approach – where some firms wait until they are “found out” by the regulator instead of making their own informed evaluation of whether a course of action is best for consumers.’
The regulator noted there was ‘unlikely to be a one-size-fits-all solution’ to the problems identified. It added it was considering a new legal ‘right of action’ allowing court enforcement against firms accused of breaching FCA rules in addition to the ombudsman, which some respondents described as ‘inadequate’.
The regulator has been subject to a series of complaints about its handling of mini-bond lender London Capital & Finance. The firm collapsed into administration this year with the loss of most of its £237 million in client assets, following years of complaints and warnings about the firm from the media and industry.
A high number of responses to the consultation, which was launched in mid-2018 and pre-dates the failure of LCF, said they felt that the current system of ‘principles based’ rulemaking too often led to a vacuum when it came to decision making.
‘These respondents want us to broaden our application of the principles, increase our appetite for taking action where there is no detailed rule breach, and have a clearer public dialogue about our expectations.
‘They believe that, if we did this, firms would feel more confident and incentivised to proactively ‘get it right’ from the start, instead of waiting to be told.
The regulator said it would consider further steps before making a series of reccomendations later this year