LONDON (Reuters) - The top priority of Britain’s new financial conduct watchdog must be to promote competition in banking to give consumers more choice, financial services minister Greg Clark said on Tuesday.
The Financial Conduct Authority (FCA), which will be formally launched in early 2013 as part of sweeping changes to Britain’s banking industry after the credit crisis, should help customers switch accounts and lift barriers for firms to enter the market.
“We need strong regulatory action to promote competition. It’s an urgent task,” Clark told a Thomson Reuters event.
Hopes of more competition in the UK banking sector were dashed last week when Spain’s Santander (SAN.MC) pulled out of a deal to buy more than 300 branches from the state-backed Royal Bank of Scotland (RBS.L).
Martin Wheatley, chief executive designate of the FCA, said the new watchdog will use competition as part of its toolkit to clean up markets and protect consumers better than in the past.
He told the Thomson Reuters event that the new system will have a “greater appetite to get things done”.
“Fewer firms will have regular direct contact with supervisors, as we shift resources to allow us to deal more quickly and effectively with emerging issues, and run more cross-industry projects to get to the root cause of problems,” Wheatley said.
Britain is shaking up its supervisory system to plug gaps highlighted by the financial crisis and try to draw a line under 20 years of product mis-selling scandals, from home loans to insurance policies.
The FCA will replace the Financial Services Authority, which will be scrapped, and focus on enforcement and keeping markets clean. The FSA’s banking and insurance supervisory tasks will be transferred to the Bank of England (BoE).
“Our new approach will include tools, such as competition, that were never available to the FSA,” Wheatley said.
“We will also consider whether competition could lead to better results than other action we could take,” he added, without elaborating.
Wheatley sought to reassure the industry that he will use other new powers carefully, such as being able to ban products and force the withdrawal of marketing literature.
“Firms selling the right products, in the right way, to the right consumers have little to fear,” he said.
The cost to banks of compensating people mis-sold loan protection insurance alone will top 10 billion pounds.
Britain’s dual regulatory approach - with the FCA overseeing conduct and the BoE financial health - aims to increase the intensity of supervision which was found wanting ahead of the financial crisis of 2007-8.
The dual approach has already been introduced on a “virtual” basis by splitting up the FSA staff into conduct and prudential units ahead of a formal switchover next year.
Wheatley said changes already made by the FSA since the financial crisis began five years ago, in particular the “credible deterrence” policy of taking a harder line against insider dealing and market abuses, will continue under the FCA.
The FSA has been collecting record fines from financial firms, in particular Barclays for rigging the Libor interest rate.
The government has just announced that fines in excess of enforcement case costs will in future go to the treasury, a step which may make the watchdog pause before taking on complex cases that require many resource-intensive months to probe.
The industry is already alarmed the FCA can tell the public far earlier if it is taking action against a financial firm.
Editing by David Cowell and Mark Potter