UK: Improving accountability of the FCA and the financial services industry through transparency and more effective disclosure

Being a transparent regulator is at the heart of the approach of the new Financial Conduct Authority (FCA).  Clearly there is a need to strike the right balance between fostering the public's legitimate interest in transparency and refraining from disclosure where there would be unfairness in doing so, where the public interest might be harmed, or where other legal considerations might prevent it.  To stimulate debate about when and how the FCA should balance competing calls of transparency and sound regulation, the Financial Services Authority has today published a discussion paper on Transparency: DP13/1. 

Martin Wheatley, CEO designate of the FCA, sees this paper as a first step in what will be an ongoing process of identifying ways to increase transparency.  Comments on the paper are sought by 26 April 2013.      

The Financial Services Act 2012 (the 2012 Act) amended the Financial Services and Markets Act 2000 (FSMA), inserting in section 3B a requirement that the new regulators should have regard to:

• the desirability of publishing information about regulated firms/individuals, or requiring such persons to publish information; and
• the principle that regulators should exercise their functions as transparently as possible.

The regulator is therefore reviewing the extent of its constraints in the light of these requirements, building to some extent on the work and outputs from the FSA's DP08/31 (Transparency as a Regulatory Tool). 

The general proposals in the discussion paper, dealing with more effective disclosure of information both by the FCA and from firms, have been produced in consultation with trade bodies, consumer groups and the independent Panels, and aim to help consumers make better informed choices, to influence firm behaviour and to enable external stakeholders to hold the FCA to account.

Information that the FCA could release about its processes and the actions it takes

• Supervision:
  • Aggregated information about supervisory activity, potentially including the number of planned and unplanned supervisory visits that have taken place across different sectors, the number of variations of permission (both OIVOPs and VVOPs) and in which sectors, and types of requirements imposed
• Whistleblowers:
  • Some feedback for whistleblowers about the action that has been taken after they have contacted the FCA
  • Data in an aggregate form about the number of whistleblowing incidents and any action taken with the information received
• Enforcement:
  • More information than currently set out in the annual enforcement performance account, possibly including average length and cost of investigations, bringing together themes and explaining the focus on particular topics, more information about issues covered in feedback meetings with firms at the end of cases

More (detailed) information about firms, individuals and markets

• Authorisation: Aggregated information about authorisations, including broad reasons why applications are refused or withdrawn, and the average time to process applications
• Thematic Work: Anonymous aggregated information about the results of thematic work
• Redress: More details about redress schemes in final notices (full openness on redress in future settlement agreements)

Requiring firms to publish information

• Greater disclosure of product performance:
  • More transparency in the annuity market to make it easier for consumers to compare products and get the best deal
  • Publishing claims data on insurance products to help consumers understand the value of particular insurance products
• Other forms of firm disclosure:
  • More context around published complaints data to improve understanding of what the data shows - possibly mandating the FSA's voluntary contextualisation matrix

Whilst advocating these proposals as having the potential to have a material impact on the FCA's accountability and on the markets it will regulate, the discussion paper also recognises that not all disclosure aids transparency, and that it is important to be clear about the net impact of any changes (including the potential for unintended consequences). 

The FSA also acknowledges the legal constraints under section 348 of FSMA, the due process requirements around public censure, restrictions under the Freedom of Information Act, the Data Protection Act and article 8 of the European Convention of Human Rights.   For our 2008 briefing on some of the due process issues involved in using public censure as a supervisory tool, click here.

The 2012 Act will enable the FCA to publicise enforcement action at the warning notice stage under section 391 of FSMA, and to publish, or require an authorised person to publish, information about a direction under section 137Q of FSMA to withdraw (or refrain from making) a financial promotion.

Martin Wheatley has stressed that he is open to hearing from all interested parties about their views on this paper and their ideas about how the FCA and firms could be more transparent, and that this is not a one-off exercise. 

The FSA has also started work, to be taken forward by the FCA, on the following new accountability measures required under the Financial Services Act 2012:

• A value for money strategy to ensure that the FCA is making the most efficient use of its resources - this will involve publication of more information about direct expenditure, such as IT, and indirect expenditure, such as section 166 reports
• A statement of policy on regulatory failure to provide more detail about the conditions under which an investigation into regulatory failure would take place.