FSA gets to ban firms and individuals
The bill contains significant extension of the FSA’s those powers. Mathew Rutter, partner at law firm Beachcroft LLP said: "The power to tear-up banker's service contracts sounds dramatic, but I doubt it is something the FSA would be keen to do. It's the regulatory equivalent of Trident - it is the ultimate sanction, which is designed to strengthen the negotiating position of the FSA, rather than ever to be used.
He added: “The power to suspend not just individuals but whole firms for misconduct will allow the FSA to move very quickly if needed, but would be likely to be reserved for the most serious abuses which put customers at risk. It's not clear how much evidence the FSA would need to justify exercising this power, but it's not something the FSA could attempt without pretty solid grounds. An example of where this power might be used could be an IFA where there are systemic mis-selling concerns.
Rutter said that on the the face of it, the new powers appear draconian but, in practice, may well be no more than a blunt instrument.
"The more likely effect is that the new powers will enhance the FSA’s negotiating position and ability to enforce its remuneration code by enabling it to bring greater pressure to bear on firms in relation to the way in which discretion is exercised when awarding bonuses. The new rules are clearly designed to assist the FSA in achieving the aims of its remuneration code of linking pay more closely to long-term profitability and curbing excessive risk."
Suspending firms from specific business lines for a defined period of time is controversial and at a micro level, the Bill tips the scales in favour of more regulatory intervention on the part of the FSA, and more detailed rules.
“In the future,” said Rutter, the FSA will need to take into account the need for financial stability and the wider economic and fiscal costs of the failure of a financial institution when deciding between different possible courses of regulatory action. ”Those considerations are likely to lead to more regulation for all FSA-authorised firms.The Bill also gives the FSA free rein to conduct a review of past business failures, and, for example, order firms to pay compensation to consumers. The Bill extends this beyond failures resulting from breaches of the FSA Rules, to include breaches of the general law.
Rutter concluded that the FSA would be able to enforce not just its own rules, but any right which a customer themselves might have against the regulated firm. He said the Bill even allows the FSA to instigate a representative action through the courts where it believes there has been a breach of its rules, although the Government has said that this would only be used in exceptional cases."