Speech by Financial Secretary to the Treasury.
Today Martin Wheatley and John Griffiths-Jones are setting out their proposed approach to discharging the remit of the new Financial Conduct Authority.
The legislation implementing the Government’s reforms to the UK’s financial regulatory system is still being debated in Parliament, and the precise calibration of the FCA’s functions and powers may change as a result of the Parliamentary process.
However since there is broad support for a new, credible and focused regulator of conduct in financial services, it is sensible to be setting out, and sharing for consultation the approach to be taken.
We need the FCA to play a crucial role in securing better outcomes for consumers of financial services.
I am pleased to be here today, at the launch of the FSA’s consultation document on how the legislative framework for the new FCA should be put into practice.
The new authority will have a clear and focused mandate to make sure markets are working well, complementing the Bank of England’s strengthened responsibility for financial stability.
And I welcome Martin Wheatley and his team’s efforts to develop the FCA’s regulatory approach, particularly the FCA’s consumer protection remit, to take account of the new powers created under the Bill.
Martin Wheatley will set these out in more detail. But let me pick out one of the most important - the FCA’s new competition mandate.
It is the first time that the financial services regulator in the UK will have an active role in promoting competition.
First, the Bill proposes to give the FCA a new operational objective: to promote effective competition in the interests of consumers. This objective will be on a par with the market integrity and consumer protection objectives. It will enable the FCA to use its full suite of regulatory powers to promote competitive markets.
But we are going even further than that. To make clear that we consider competition not just an end in itself but also a means to achieving other goals, we are also placing the FCA under a new competition duty; to, so far as is compatible with acting a way in advancing the consumer protection objective or the integrity objective, discharge its general functions in a way which promotes effective competition in the interests of consumers.
This duty will prompt the FCA to first think about whether it can use competition, rather than regulation, to achieve an outcome.
Competition is important because it drives efficiency and innovation. It can lead to lower prices, better quality products, and more choice for consumers.
The financial crisis led to a consolidation in the financial services sector, resulting in less competition. I hope that this will be temporary.
Just as regulators have been intervening to get banks to strengthen their balance sheets following the crisis, we need strong regulatory intervention to promote competition. This is an urgent task, and I see it as a key priority for the FCA in its first few years.
That means one of the FCA’s priorities as a new regulator should be removing barriers to entry, expansion, and exit.
Promoting switching between providers and products.
High switching costs affect corporate as well as retailer customers. They dampen incentives for incumbents to provide cheaper and better services. They also make it difficult for new entrants to attract customers, even with cheaper prices.
But the FCA must also be willing to take a critical view of the role that it, as the regulator, may play in preventing or distorting competition.
This means removing unnecessary regulatory barriers to new entrants, in particular supporting, diversity and innovation.
It is vital that the FCA is not simply a regulator of incumbents.
I know this represents a significant change in approach but one which Martin Wheatley welcomes.
The FCA will of course also have equally important responsibilities, for securing the appropriate degree of protection for consumers, and promoting and enhancing market integrity. It must do all these things, coherently, in order to support financial markets to function well.
This is no easy task. But the consultation being launched today provides us all with an opportunity to contribute to making the FCA a success.
I will now hand over to Martin Wheatley who will tell you more about his vision for the FCA and the consultation that is being launched today.