MONDAY 1 APR 2013 9:25 AM


On 19 December 2012 the Financial Services Act 2012 received royal assent and comes into force today, 1 April 2013. With it sees the launch of a new regulator. Communicate magazine spoke to those tasked with reputation management, investor relations and financial PR on what they would like to see from the newly formed Financial Conduct Authority.

If ever there was a more inauspicious day designed to launch a regulator introduced to restore confidence to a bruised and battered industry it would be Easter Monday. Yet in practice the launch today of the Financial Conduct Authority, one of the three bodies designed to replace the Financial Services Authority in the regulation of the financial services sector, is not a complete unknown. The FSA and the FCA have been running in tandem for a while, and when Martin Wheatley was appointed by the FSA over two years ago it was with the stated aim of him assuming responsibility of the then-unnamed FCA. Increasingly the FCA’s shadow to the FSA has grown, with last week’s controversial fine of Prudential effectively coming from Wheatley’s team.

The history of the FSA was one strewn with changing roles and fluctuating powers. Originally launched as the Securities and Investments Board in 1986, it changed to the FSA in 1997. Greater statutory powers were given it by the Financial Services Act 2000 and at various points over the following ten years it saw its remit increase in include the oversight of the mortgage and insurance industries.

However, it was thought by many to have been sleeping on the job in its failure to forecast the banking crisis, and in 2010 it was announced that it would be closed and replaced with the launch of the Financial Conduct Authority and the Prudential Regulation Authority which together would join the Financial Policy Committee of the Bank of England in regulating the sector. This triumvirate was empowered by the Financial Services Act 2012.

The FCA, however, launches into controversy. In fining the Prudential £30m last week for failing to inform regulators, statements were effectively being made that financial services firms would get short shrift. Additionally, although the penalties were handed out by the FSA in its last week, its censure of CEO Tidjane Thiam reinforced Wheatley’s statements that responsibility had to rest with senior management.  Many commentators have seen the Prudential’s penalties as out of kilter with fines on other financial services firms, and are looking to see whether this harshness really is a sign of things to come under the new regime.

Certain increased powers, however, have been much welcomed, with the UK Sustainable Investment and Finance Authority (UKSIF) citing the broadening of its remit to include social investment and peer to peer lending as a good thing.

With the industry still yet to restore its reputation from half a decade of over-aggression, fraudulent traders and mis-sold products, the FCA does not have the luxury of a gentle ease-in to its new powers. We asked a number of industry commentators their views on what they would like to see from the new body.

The first sighting document on how the FCA would be different from its predecessor, published last autumn, was titled prophetically “Journey to the FCA”. And we can certainly see a journey taking place.

Last week the CEO-designate Martin Wheatley admitted that large fines did not appear to be working yet the Journey document promised ever more ferocious enforcement interventions to clean up financial services markets.

This week’s FCA Business Plan and Conduct Risk documents admit that interventions in markets are a double-edged sword. To scare off new market entrants and to scare off customers will not allow the regulator to fulfil its new statutory objective of promoting competition in the interests of consumers.

This recognition that an all sticks and no carrots approach may be a bit limited is very welcome. What is needed is a far more subtle and nuanced approach to regulation that can filter out good innovations from bad and promote greater customer engagement; a concept both the regulator and industry can agree upon.

If any real progress is to be made a new conversation needs to start between regulator and regulated that is more adult to adult rather than adult to child as has been the case over the past decade.

There will need to be a new language built around contingent statements of how the parties will behave in future so that customers are not left with the simple conviction that any industry that gets so much punishment must be unworthy of their trust.

The FCA’s recognition that behavioural economics offers powerful clues to the best approach to regulatory policy is welcome. Neither consumers nor industry are consistently rational. We need smarter public policy to take that properly into account.

Richard Hobbs
Head of Regulatory Consulting
Lansons Communications LLP

The first time I set foot in the FSA – it hadn’t even received its full powers.It was 1998 and I was asked to help them in set up mode. The formal legislation to create the FSA had not even entered the statute book. Only in 2000 did the new regime assume all its responsibilities.

My work was to help the nascent regulator with communications around its first industry ‘scandal’.

The new Labour Government had speeded up the process of naming and shaming personal pension providers accused of ‘mis-selling’ to millions in the 80s and early 90s. The FSA was now embarking on the ambitious ‘RU Owed?’ campaign writing to millions of potential victims of mis-selling.

The techniques of this mass awareness, form filling campaign seem a world away from the digital age. But the campaign achieved huge reply and return rates and served as a way to introduce the FSA ‘brand’ to millions as being ‘on your side’.

A financial crash and over a decade later – we witness the end of the FSA.The blame game has been played out globally for regulators everywhere. The Queen once famously asked the Bank of England: “Why did no one predict the crisis?”

So as the Bank assumes complete oversight of regulation across the PRA and FCA what can we hope for? Three things are key for me.

Firstly – I believe understanding the direction of travel and remit for the new regime is key. As policymakers continued to change course through the crisis – the FSA was buffeted around in its mandate. This must not continue to happen.
Second – both firms and consumers want to see a consistency in approach from the new regulators towards their decision making process. Sure - there needs to enforcement action – but this needs to be consistently applied.
Finally – the new regulatory regime must make the UK an attractive place to locate a financial services business. We need it to be – more than ever before.

Iain Anderson
Co-Founder, Director and Chief Corporate Counsel
Cicero Consulting

Today sees the newly-formed Financial Conduct Authority formally take over responsibility for investor protection and market oversight in the UK and marks the final dissolution of its heavily-criticised predecessor the Financial Services Authority.

The FCA’s Chief Executive-Designate Martin Wheatley has the unenviable task of restoring the credibility of British financial regulation, and questions are already being raised about whether this is a change in name only and how the new organisation will approach the task in hand.

Earlier this month Wheatley outlined his desire to create a regulator that is not “enforcement-led”, but will work to build better relationships with the City; he will not warn people to “be afraid” like his FSA predecessor Hector Sants.

However, the heavy-handed way in which the outgoing FSA recently dealt with Prudential’s failure to be “open and co-operative” in its planned acquisition of AIA, casts doubt on how cosy this relationship will be in practice.

The £30m fine levied by the FSA, as well as its personal censure of Prudential’s CEO, was seen by many as an ill-judged and disproportionate attempt by the watchdog to claw back some credibility in its final days, after repeated failings before and during the financial crisis. More worrying is the FSA’s desire to “send a clear message” with this action, suggesting it could be an indication of the shape of things to come, in spite of Wheatley’s conciliatory rhetoric.

The FCA has been very clear in some areas, such what it expects from those marketing financial products to retail investors; however obligations for regulatory disclosure remain vague. Considering the price Prudential has paid for not adhering to the FSA’s unspecific requirement that it is informed of “anything relating to the firm of which the FSA would reasonably expect notice”, this is a problem.

If the FCA is to be a fair and effective regulator, Wheatley must make good on his promise to take a balanced approach to regulation, providing greater clarity on important issues like disclosure and favouring collaboration over castigation.

Julian Rea
Executive Director

So farewell FSA. Having been at the helm during the most tumultuous period in financial markets for decades, as events threatened to spiral out of control and the edifice of global capitalism rocked on its foundations, the FSA is being scrapped from 1st April. With it legislated out of existence and a new ‘twin peaks’ model creating the Financial Conduct Authority accountable to HMT, and the Prudential Regulatory Authority as a subsidiary of a beefed up Bank of England, what will be the FSA’s legacy given criticism it has faced in the years following the 2007-08 crisis?

Criticism that has been directed at the FSA by some commentators essentially boils down to this: the ‘light-touch’ regulatory model it espoused did not adequately identify or rectify systemic risks in the economy with the result that the banking sector in particular became dangerously overheated, leading to over-leveraging and, in hindsight, hubristic takeovers being left largely (or entirely) unchallenged. The FSA was initially established as a ‘super-regulator’, bringing together multiple smaller ones, and while during the bullish period this worked to a reasonable degree it became quickly apparent that under serious strain its remit simply could not adequately cope, with vital areas falling between the cracks. In addition, its broad remit led to resource overstretch as it struggled to get to grips with the new reality of repeated market shocks.  Compounding both of these issues, was its lack of power to act on crucial issues. Defenders of the FSA’s record point to the financial culture of the time in which there was little appetite for anything other than light touch regulation with both government and opposition unwilling to push for tougher action.

Following the 2008 tempest, the FSA undeniably made strides to counter the perception of its alleged toothlessness  with chairman Lord Turner’s 2009 review accepting that ‘light touch’ had largely not succeeded and that a more holistic approach with an added emphasis on macroeconomics was required to avoid similar crises in the future. The FSA also in the eyes of many at least partially redeemed itself with vigorous action against insider dealing for example.

So what will be the approach under the new ‘twin peaks’ model? Early indications are that more delineated, specialist regulatory bodies will do more to address the practicalities of day-to-day regulatory monitoring while at the same time assessing and addressing systemic risks and structural flaws before they take root (the new Financial Policy Committee has a key role here). It need hardly be said that the effective functioning of the Bank of England in fulfilling its significantly enhanced remit is essential for success.  We look forward to working within the new structure and trust that it will help create a competitive and fair market place for our members’ companies to thrive in as the UK economy continues to strive for recovery.

John Gollifer
General Manager
The IR Society


TUE 12 Feb 2013 2:25 PM
Redesign of air ambulance