FSA – CP 12/37 – The Financial Services Bill: decision-making procedures
We are broadly in support of the proposals set out in this consultation. Our main concern is to ensure that credit unions, as small, dual-regulated firms, are able to effectively contest supervisory and disciplinary decisions where they wish to and for there to be effective and robust procedures in place to do so. As such we urge consideration to be given to:
- the clarity of protocol for small firms wishing to contest a decision
- ensuring full neutrality and independence where FCA staff are to both make initial decisions and consider appeals
- the RDC considering appeals against the refusal of FCA consent in relation to applications from dual-regulated firms for which the PRA require FCA permission, and
- an extended time frame for contesting decisions in relation to publication of warning notices for small firms.
We restrict our comments to those elements of the consultation which directly affect the credit union sector. As such we have no comment to make on questions 1-15.
Q16. Do you agree with our proposals regarding decision-making for own-initiative variations of permission and own-initiative requirements?
We are broadly satisfied with the proposals given that they represent only an extension and development of protocol under the current regime. However, we are keen that there are clear and effective mechanisms available to firms – particularly smaller firms, such as credit unions – to contest and appeal against decisions to impose requirements. This is particularly important for smaller firms since their limited scale and resources mean that the imposition of requirements can have a more substantial effect than might be the case for larger firms.
As such, it would be welcome if the decision to proceed with such a decision where it is contested were made by parties independent to the original decision. This is particularly important given the FCA’s intention to act more proactively and, therefore, to impose requirements more readily than previously. Similarly, we would welcome greater clarity in the information available to firms as to their right to contest a decision and the procedure relevant to doing so.
Q17. Do you agree that FCA staff under executive procedures should decide whether to exercise the financial promotions directions power?
On balance, we agree that this is an appropriate approach given the FCA’s intention to use the power actively in order to prevent consumer detriment and that it is a supervisory rather than a disciplinary power. We would only urge, as above, that there are clear and robust means by which a credit union can contest a decision to use this power.
Q18. Do you agree that FCA staff under executive procedures should decide whether to refuse consent to the PRA in respect of applications for permission, variation and approval in relation to dual-regulated firms at both the warning notice stage and the decision notice stage?
The case in favour of this proposal is weak. While we appreciate the rationale in reducing complexity for dual-regulated firms, it seems to directly contradict the rationale used elsewhere. For instance, it is argued in relation to FCA staff making decisions for own-initiative imposition of requirements that to cut the Regulatory Decisions Committee (RDC) out of the process is appropriate since it will not represent a substantial change in the firm’s operations. However, in this instance, where the decision clearly has the potential to have a very significant impact on a firm’s operations, it is considered appropriate also to remove RDC from the process.
Given that the FCA’s consent (or lack of consent) will determine the success of an application since the PRA are bound to respect the opinion, we feel that there is a definite case to say that the RDC should be available to consider contested decisions and appeals from firms. While this might introduce extra complexity into the process, it seems entirely reasonable given the gravity of the decisions taken. In order to mitigate against undue complexity, this could be provided for on the basis that the RDC only intervene where significant decisions are concerned but we feel that, at least in the most serious cases, this is entirely appropriate.
Q19. Do you agree with our proposed amendments to DEPP 3?
We are broadly in agreement with the proposed amendments. We support strongly the RDC’s role in determining such decisions as opposed to FCA staff. We would suggest, though, that a longer period than 7 days might be more appropriate for representatives of smaller firms, such as credit unions, to respond to the RDC. It is possible that in small firms with limited resources a failure to respond may result from a notice being missed accidentally and a seven day time limit gives little leeway in this regard.
Q20. Do you agree with our proposal to apply the existing penalties and suspensions policies in DEPP to the FCA’s new disciplinary powers?
We agree, particularly in ensuring simplicity in transition, that the existing policies should be retained.
The full response can be downloaded on the right