FSA - CP 12/35 - FCA Temporary Product Intervention rules
Our response to this consultation can be summarised as follows:
- Temporary product intervention powers should be used only where permanent powers are either unavailable or would not achieve the desired outcomes. This would have the benefit of ensuring that all firms and consumers are fully aware of the FCA’s core powers in advance of their use.
- As far as possible, permanent intervention powers should be taken in order to avoid the uncertainty that would result from regular use of ad hoc temporary product intervention powers. This would be particularly beneficial for small firms such as credit unions which greatly appreciate clarity wherever possible. It would also mitigate against the risk of the temporary powers discouraging innovation or market entry or the potential for unintended detriment to arise from temporary intervention which has not been scrutinised in public consultation.
- Given the extraordinary nature of the temporary product intervention powers and their inevitable unpredictability, small firms such as credit unions would benefit greatly from every effort being made to ensure that firms are aware where the temporary powers are invoked. To this end we appreciate the commitment to widely publicise such use. We suggest, as a means of affecting this, that all firms are notified by email as a matter of standard protocol wherever temporary intervention powers are used
Q1. Do you agree with our analysis of some of the circumstances in which temporary product intervention rules might be necessary?
These seem like reasonable circumstances in which the FCA might consider utilising temporary product intervention powers. It does, however, seem unusual that these examples are used in relation to the temporary power. Indeed, it seems that in these instances permanent product intervention powers could be used effectively since the kinds of issues at stake are foreseeable.
For example, where bundling and tying are considered detrimental to consumer interests, a power could be provided for in advance to allow FCA to force the sale of a product on its own or not at all. To intervene under an established, pre-arranged intervention power which has undergone full consultation would be preferable than to do so under a temporary, ad hoc power.
We would therefore urge that as far as is possible, the FCA attempts a. to establish powers on a permanent footing and b. to address consumer detriment through the use of such permanent powers wherever possible. This will ensure that all firms and consumers are aware as far as possible of the powers which the FCA is likely to use.
Q2. In what other circumstances might it be necessary to make temporary product intervention rules?
As above, we would urge that the use of temporary product intervention powers is kept to an absolute minimum and that, therefore, where a typical scenario that might require intervention can be foreseen in advance, the FCA should formally consult on the powers it believes it will need to effectively intervene in said scenario. Only in circumstances that cannot be dealt with by these powers effectively should the temporary power be invoked.
Q3. Will our proposed approach create an appropriate level of awareness amongst firms affected by temporary product intervention rules?
It is reassuring that the document gives a clear commitment to make every effort to ensure that affected firms are aware where the temporary product intervention rules are invoked. However, we would urge the FCA to go further and to commit to issuing direct communications, perhaps by email, to all regulated firms wherever there is an instance of the use of temporary product intervention powers. FCA staff might also make trade associations such as ABCUL aware in order that they can alert their memberships.
Given the radical nature of temporary intervention powers and the fact that it is impossible to plan for their introduction since, by definition, they cannot be known in advance, we feel that it is appropriate to take measures that might not ordinarily be used in order to ensure that all relevant parties are alerted. Small firms such as our member credit unions are likely to be among those least equipped to keep up to date with the FCA website in the way that is envisaged by the consultation document and we do not think that a generic email notification to all firms would present a great resource burden.
Q4. How should the FCA balance the need for clarity and awareness in the market against the likely need for urgent action when making temporary product intervention rules?
We feel that the most effective way in which to ensure clarity and awareness is to use the temporary power only in such circumstances as preclude the use of permanent powers which have undergone formal consultation. While we understand the need for the temporary power in avoiding a repeat of the consumer detriment seen in recent years, we also feel that in most cases the form of power required to intervene effectively can be foreseen in advance and, as such, should be instituted on a permanent footing. This will provide adequate clarity and awareness for the market in understanding the core powers of the FCA and that only in very unusual circumstances would any other powers be created.
Q5. How can the FCA best protect consumers who hold products which might be affected by temporary product intervention rules?
It is difficult to envisage in advance what the potential detriment to consumers might be in these circumstances. It would seem that the FCA will be required to make a judgement as to whether the benefits for other consumers exceeds the detriment that intervention might have for those that have already taken the product concerned. To this end, working closely with consumer groups in utilising their knowledge of the workings of consumer detriment could be useful and should be more of a possibility under the enhanced relationship with consumer bodies envisaged by the Approach Document.
Q6. Do you agree with our analysis of how temporary product intervention rules might impact upon innovation and market entry?
We are broadly in agreement with the consultation document’s analysis of how temporary product intervention rules should not act as a barrier to innovation and market entry. It is true that to expect firms to consider the interests of consumers when innovating or considering market entry is not an unreasonable expectation.
However, as we have set out above, the main factor in ensuring that the temporary product intervention powers do not cause more problems than they solve is to only make use of them where permanent powers cannot be used. This involves taking all the foreseeably required powers in formal consultation with the industry under the permanent product intervention power provisions and only using temporary powers where no other option remains.
While we appreciate that the temporary powers may be necessary in some circumstances, we feel that in many circumstances – such as those outlined in the document – the powers that might be required can be reasonably foreseen in advance and, as such, should be taken formally. If temporary powers are only ever used in extraordinary circumstances this will ensure that all parties have maximum clarity and awareness and can proceed in the reasonable knowledge of what they can expect the regulator to do.
Q7. What issues should we consider in relation to how this Statement of Policy affects equality and diversity?
We do not feel that there are any special considerations to make in relation to the Statement of Policy and equality and diversity. The provision of an Equality Impact Assessment as in the case of formally instituted powers should be sufficient. The problem, of course, arises in that the temporary powers – though supported by an EIA – will not have been scrutinised in public consultation and therefore we would urge very careful consideration of all temporary product intervention rules and their effect on equality and diversity before being implemented.
Limiting the powers’ use to only those circumstances where permanent, fully-consulted-upon powers cannot effectively achieve the intended outcomes will contribute to this, also.
The full response can be downloaded on the right.