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Our response to the HM Treasury Future Regulatory Framework Review phase II consultation

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HM Treasury is consulting on the future regulatory framework for financial services following the UK’s exit from the EU. The government proposes to review and update the present framework to incorporate EU regulations and learn from the existing model.

We support the government’s intention to build on the current framework, which improved substantially on the regime it replaced, and maintain a strong independent regulator.

We also support the government’s intention to introduce an activity-specific policy framework for areas of regulated services to provide greater clarity in regulatory objectives, while noting that principles laid down by Parliament can constrain the regulator’s response to emerging concerns and evidence.

The proposals must be implemented carefully and designed with consumer outcomes in mind so as not to restrain effective independent regulation.

In our response, we highlight a number of issues and opportunities to strengthen the consumer protection framework that the review should consider:

  • Consumer protection cannot be met through regulatory policy alone without leaving the needs of financially vulnerable consumers unmet; the government can help resolve tensions in regulatory policy by clarifying how it will respond to and incorporate insight from the regulator into its policy making
  • The regulatory framework should actively incentivise the development of products and services that align with the interests of consumers who are vulnerable to debt and other harm from using existing products. An effective duty of care should be set in the highest level of the regulatory framework that incorporates a ‘fair by design’ principle and prevents firms profiting from consumer vulnerability, biases or constrained choices
  • The review should consider incorporating a strong requirement for the regulator to have regard for financial inclusion to promote access to financial products and services that meet the needs of consumers with low incomes or certain characteristics, such as those with a physical disability or experiencing poor mental health
  • The consumer voice should be ‘hard wired’ into FCA policy making by embedding consumer representation in the high level legislative framework
  • Equalities objectives should also be integrated into the regulatory framework to better inform regulatory policy making

We would welcome a programme of engagement with consumer groups and other relevant stakeholders to work through these issues. This should focus on ensuring that the FCA’s competition objective does not jar with its consumer protection objectives, and giving better definition to the consumer protection and strategic objectives.

You can download our full response here.