Alarm raised over new early warning powers

New powers to name and shame firms under regulatory investigation risks baselessly undermining those companies’ reputations, MPs have warned.

A Treasury select committee report on the Financial Conduct Authority, published today, raises alarms about the proposed new power for the new regulator to issue early warning notices about companies.   

The FCA is being set up as part of an overhaul of financial regulation that will result in the dismemberment of the FSA.

The committee’s report says: “A general rule permitting the FCA to publish early warning notices in respect of specific firms, which in some cases could subsequently prove to be unfounded, risks unreasonable reputational damage to which there may be inadequate redress. We are also mindful of the risk to natural justice, given that in such a case the regulator may be investigator, judge and jury.”

The report recommends that the government should continue to consult on its proposed power for the FCA to issue early warning notices in respect of investigations into specific firms.

The report also recommends that the FCA should be more accountable to parliament and that the government should ensure adequate co-ordination between its new regulators at the European Insurance and Pensions Authority (Eiopa).

Biba head of compliance and training Steve White welcomed the report’s recommendations on costs.

He said: “We welcome the report’s comments on costs. Our members have faced an ever-increasing regulatory cost burden since 2005. Indeed, the independent research highlighted that this burden is some three times higher for UK insurance intermediaries than for the second dearest state in the EU (Ireland). We have repeatedly stated that this position is simply unacceptable.”

“The competitive position of the UK’s insurance intermediary sector is significantly threatened by the nature and costs of the current regime and it is very important in the development of the FCA that this issue is not overlooked.”