Peter Wright (ExFSA lawyer) - The FCA must change small firm supervision

April 22, 2013

This article was originally written by Donia O'Loughlin for the FT Adviser.

Former FSA lawyer says regulator is “almost doomed to failure” with product intervention.

The Financial Conduct Authority must change the way it regulates smaller firms if it is to succeed with its interventionist approach and particularly product intervention, as it currently lacks the necessary “clear line of sight” over product generation, according a former lawyer at the regulator.

Speaking to FTAdviser, Peter Wright, former lawyer at the Financial Services Authority and currently litigation partner at law firm Fox Williams, said that the regulator is “almost doomed to failure” with the new powers as they may prove unwieldy and issues inevitably “slip through the net”.

In March, the Financial Conduct Authority issued a policy statement on its product intervention powers and it said it will seek to use the powers where a product is in “serious danger” of being sold to the wrong customers.

It gave examples such as when niche products are sold to the mass market, where a nonessential feature causes problems for consumers, and where a product is “inherently flawed”.

However, Mr Wright said the nature of the new powers will require it to have a closer relationship with firms in order to catch products as they “come on stream”, exposing a lack of oversight it currently has with smaller firms that it does not manage through relationship managers.

He added that for the FCA to use product intervention powers effectively, the regulator “will need to have a really clear line of sight” over how a business develops new products and how it is being sold.

He said: “If they are to do what they say, it does need to be a closer relationship. The relationship over the past few years has always been closest to the largest firms with the dedicated relationship managers.

“It will be interesting to see how they supervise the medium and smaller firms going forward and to keep that degree of contact.” Mr Wright also expressed his doubts over the effectiveness of the powers, saying that it will probe impossible to prevent an issue arising in the future and that the regulator will come in for criticism for its flagship policy having failed.

He said: “This power [product intervention] is really hard for the regulator as it is inevitable that at some point there will be something that goes through the net and actually detriment crystallises.

“If you go back decades that has always happened but people will turn round and say, ‘you had this product intervention power and you said that [power] would stop this kind of behaviour’. So I think it is almost doomed to failure with that approach.”

He added: “The FCA is not a new organisation at all. It’s the same people doing the same roles in the same building. This is just an evolution of the organisation.”


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