The plan boils down to:
- Effectively scrapping the FSA. Moving the supervision of financial institutions (banks, building societies and insurers) to a new division at the Bank of England. And rename the consumer protection aspects of the FSA’s remit to the rather grand “Consumer Protection Agency”.
- Force banks and credit providers “to provide much more information directly to individual consumers” about charges and other aspects of their products. Also get these institutions to provide this info in a form able to be utilised by comparison websites.
- Get the Office of Fair Trading and Competition Commission to investigate whether consumer choice and market competition has been affected by the consolidation seen over the last two years.
- Finally, they set out plans for macro-prudential regulation. With the creation of a “Financial Policy Committee” to control the leverage (ratio of lending to capital) of banks and building societies.
What does Richard think about this?
It is all very well shifting, merging and renaming parts of different regulatory bodies but will that really make a difference to how well regulations are enforced. It is highly likely that the same teams at the FSA in charge of monitoring the banks will just move over to the Bank of England. So what is the point? As Peston notes – “the FSA now faces a nightmare few months: given the high probability that its days are numbered, retaining and recruiting staff will not be easy.” Will it do more harm than good?
On the increased information on products to consumers. What more detail can they give? Financial institutions are required to detail everything in the terms and conditions etc. Is it really that hard to work out at the moment? If it is go somewhere else.
The idea that price comparison websites will help consumers is rather worrying. They exist to make money – through commission and referral bonuses – and nothing else. I believe promoting them may cause more harm to the consumer finance industry (savings, credit cards, mortgages etc.) through an inevitable drive to the bottom in headline price. Surely one of the problems in the lending binge was the downward pressure on lending rates from the likes of Northern Rock forcing others to lower their rates (too far) or miss out on customers.
I don’t know nearly enough to comment on the macro-prudential regulation side of things so I won’t.
Check out Leigh Caldwell’s thoughts on the policy document, and why he believes the behaviour of financial consumers needs to hold greater consideration by regulators.