FCA analyses 'perimeter of authorisation' following firm failures

The FCA has published the first in a new annual report on issues relating to the 'perimeter', which determines which firms require authorisation.

Related topics:  Regulation
Rozi Jones
19th June 2019
perimeter marker move
"The recent behaviour of some firms operating around the perimeter has caused serious consumer harm and reduced trust in regulated financial services markets."

The report will set out what the FCA does and doesn't regulate, what challenges the perimeter presents and the actions the FCA is taking to overcome them.

The FCA says the report is in response to "particular issues that have arisen in the last year" where firms operating on the edges of the perimeter caused serious harm to consumers.

One instance was Royal Bank of Scotland’s treatment of SME customers transferred to its Global Restructuring Group (GRG).

In July 2018, the regulator announced that it would take no action against RBS, despite finding "widespread and systematic" mistreatment of customers, as GRG's business was largely unregulated and therefore not subject to the FCA's regulatory conduct standards.

The regulator said that its "powers to take action in such circumstances, even where the mistreatment of customers has been identified and accepted, are very limited".

MPs criticised the FCA's approach to the investigation, with Kevin Hollinrake MP, saying the report was a "complete whitewash and another demonstrable failure of the regulator to perform its role".

Nicky Morgan MP, chair of the Treasury Committee, later said that the FCA should "now be given the powers to regulate commercial lending to adequately protect SMEs".

In its new report, the FCA said that the boundary between what it does and doesn't regulate is complex and "is not set out in a single piece of legislation, but is an amalgamation of UK and EU legislation that has developed over time".

It added that as unauthorised firms are not required to provide the FCA with information about their activities or finances it often has to take action on a reactive basis, after it finds a specific problem.

As a result, the FCA outlined plans to extend the perimeter in certain areas, such as in the pre-paid funeral plan market. The regulator also announced plans to clamp down on unregulated introducers and unregulated mortgage book purchasers, and is considering additional powers for digital channels and cryptoassets.

It will also work with the Financial Ombudsman Service, the FSCS, industry and consumer groups to develop an online disclosure system to help consumers understand what protections are in place.

The FCA's report concluded: "We continue to monitor activity outside the perimeter that may cause consumer harm and require the perimeter to be widened. Where appropriate, this includes taking enforcement action.

"Activity around the perimeter will continue to cause consumer harm. Our aim is to identify this quickly and make recommendations to Government and Parliament."

Andrew Bailey, chief executive of the FCA, said: "We appreciate that the current perimeter is complicated. The boundary between which firms and activities do or don’t require regulation, is being constantly tested.

"The recent behaviour of some firms operating around the perimeter has caused serious consumer harm and reduced trust in regulated financial services markets."

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