Mark Hoban – 2011 Speech at the British Bankers Association

The speech made by Mark Hoban, the then Financial Secretary to the Treasury, on 2 March 2011.

Good afternoon.

I’d like to start by saying that it’s a pleasure to be here today, less than a fortnight after the Government launched its latest consultation on financial regulation.

And I’m delighted that the early reaction to the consultation has been so positive.

Since May of last year, we’ve certainly come far.

But of course, we still have some way to go before this legislation is ready for the statute books.

And it’s for this reason we’ve decided that draft legislation should be subject to intensive pre-legislative scrutiny.

To get the draft Bill ready in time for scrutiny, we’ve had to shorten the period of consultation by a few weeks.

But we’re making every effort to ensure that all interested parties have the chance to help inform our thinking….

…through events like this; upcoming roundtable discussions and forthcoming meetings.

Today I want to concentrate on our proposals for the new Financial Conduct Authority.

But before I delve into this detail, I think it would be helpful if I outline a bit of the context.

Domestic Regulatory Reform – Where The FCA fits in

During the financial crisis the regulatory foundations laid by the previous administration were tried, and found to be sorely wanting.

As the pressure began to mount, cracks rapidly spread, exposing the structural flaws in the regulatory architecture.

And it was the taxpayer who was forced to intervene, to prop up the financial system, and prevent it from total collapse.

This is a situation we simply can’t afford to repeat.

So we’re putting in place a new regulatory architecture – one that will ensure all regulation of the financial system is effectively targeted.

As a first step, we are creating a single, dedicated, macro-prudential regulator.

… to ensure that any risks developing across the financial system are identified and dealt with.

This new body is the Financial Policy Committee – who, as part of the Bank of England, will have chief responsibility for maintaining financial stability and addressing systemic risk.

The interim FPC has now been appointed and will meet for the first time soon.

And at a more micro level, we’re setting up the Prudential Regulation Authority – as an operationally independent subsidiary of the Bank – with responsibility for prudential regulation of deposit takers and insurers.

By bringing together both micro and macro-prudential regulation under one roof, we will improve the coordination and coherence of financial supervision.

Why the Government is setting up the FCA

But that’s not the end of the story.

Far from it in fact.

If we’re to improve sustainability and resilience of the financial system, it’s vital that we safeguard the interests of savers, investors, and borrowers.

If customers have confidence in regulation, then they are more likely to invest, save and plan for the future.

So alongside a more secure regulatory base, we need a financial sector that works for everyone – that earns our confidence, competes for our services, and keeps us properly informed.

Which is why we’re setting up the new Financial Conduct Authority.

This new body will monitor the behaviour of all financial institutions – from the smallest retail credit union, to the very largest investment bank.

Yes, I recognise this is quite a broad church.

And that’s why a ‘one-size-fits-all’ approach just wouldn’t work.

Instead, the FCA will use its own judgment – its own discretion – to ascertain the level of intervention needed across different markets.

Whether in the retail, wholesale, or markets sphere – this new regulator’s actions will be guided by a single ambition: to protect and enhance confidence in the UK’s financial system.

Which will be complemented by three operational objectives.

The first of these is to facilitate efficiency and choice.

This will provide the impetus to bring down costs.

Improve consumer outcomes.

And ensure that there’s a wide-range of products, services and providers available on the market.

The FCA’s second operational objective is to secure an appropriate degree of protection for consumers.

So that the products they invest in, are the products that are advertised.

Where financial information isn’t misleading, disingenuous, or ill-informed.

And where people understand the risks that they’re undertaking.

Let me be clear, what is appropriate protection for a customer taking out a mortgage will not be the same as for an investment bank hedging its interest rate exposures.

And “appropriate” for retail consumers doesn’t mean they should not take on responsibility for their actions

And finally, the third operational objective of the FCA is to preserve market integrity.

To protect and enhance the soundness, stability and resilience of our financial system.

And improve the way our markets function.

Taken together, these reforms will help instill greater trust and confidence in our financial sector.

This has obvious benefits for consumers, but also for you – the industry – more generally.

How, you might ask?

Well, it will encourage more people to invest in your products.

It will make financial markets more accessible to a wider audience.

And ultimately, increase demand for the services you provide.

How the FCA will be different

Under the FCA, the regulation of market conduct will be very different.

To start with, this new body will be the first to have a single focus on the conduct of business.

It’s also the case that we want the FCA to play a far stronger role promoting competition than its FSA predecessor.

Regulation in itself is not enough to promote good consumer outcomes – we need to see competition between providers and choice between products.

That’s why we’re making it one of the FCA’s formal duties to promote competition more broadly.

Because I believe that competition is a powerful tool to deliver better outcomes for the consumer.

It enables consumers to shop around, get a better deal, and have confidence in the products they’re buying into.

So consumers need the right kind of information to enable them to shop around, we need to make it easier to them to switch between products and to compare their respective features.

This can only be a good thing for the financial sector as a whole.

Under the FCA, there will also be important changes in the approach to conduct regulation.

In the past, the onus of conduct regulation has always been on the point of sale.

Under the FCA this will still remain important, but the new regulator will complement this traditional focus on sales, marketing and disclosure, with an approach that tackles the issue from a different angle…

…with a greater focus on products themselves.

This will allow the FCA to take greater account of the products people are buying into.

Their volatility.

Their returns.

And the risks involved.

It will mean that the FCA will look at how financial products are evolving.

And take action if it feels that consumers are suffering, or there’s a risk that they may suffer in the future.

For this reason we want to give the FCA the power to ban products where it spots a serious problem.

Now I understand that certain quarters may feel apprehensive about this development.

So I’d like to reassure you that we recognise the importance of striking the right balance between protecting consumers… and providing certainty for the financial sector.

Which is why we’ve tasked the FCA with consulting on a set of principles that must be met before such action is taken.

This way, we’ll know where we stand.

What we can expect from this new regulator.

But also what’s expected from the industry.

And this way, consumers will have a greater confidence in the products that are on offer, and be able to participate more freely in financial markets.


Openness and transparency will be at the heart of the FCA’s work.

We expect the FCA to have a regulatory culture based on a presumption of transparency

…so that it makes greater use of its powers to make disclosures itself or require disclosures by firms, whilst respecting the appropriate treatment of confidential information.

To further strengthen this we’re introducing two new powers in relation to transparency and disclosure.

The first of these powers will enable warning notices to published.

I know that some people may think differently, but allowing consumers to know if enforcement action is underway is incredibly important.

If the firm in question is going through the enforcement process – but continues to carry out that activity – then surely it’s our responsibility to flag this up to its customers and to others who may have an interest in what the firm is doing.

I understand that some of you have concerns about this new power… but there’s in some instances the issue has been exaggerated… and I’d like to address some of these misconceptions.

First of all, I’ve seen that some people believe that the FCA will publish the details of every warning notice it issues.

I can assure you that this isn’t the case.

Yes, the FCA will be free to publicise the existence of a warning notice where it sees fit.

But let me be clear, this is a power, not a duty.

So if disclosure is not in the interests of the consumer…

…causes reputational damage disproportionate to the matter at hand…

…or undermines the regulator’s position…

…then the FCA will be able to use its own discretion when deciding if disclosure is really in the public interest.

The second rumour I’d like to dispel is that the subject of a warning notice will have no say in events as they unfold.

Let me be clear, before giving any details to the general public, the regulator will notify the firm of its intentions.

At no point in this process will the firm be left in the dark… or feel that their views have not been taken into account.

And the final story I’d like to quash is that the FCA will never make an admission if enforcement action comes to a halt.

In fact, the opposite is the case.

If the regulator decides to stop an investigation, it will issue a ‘notice of discontinuance’…

…this will ensure that the FCA, like the industry, will also be publically accountable for their actions.

And this gives industry and the public an opportunity to assess the regulator’s success in taking enforcement action.

I will say more on the subject of accountability in a moment…

…but let me first set out briefly why we are also taking a new transparency power in relation to financial promotions, as greater transparency will be central to the work of the FCA.

This is why the second power of disclosure we’re consulting on relates to misleading financial advertising.

Confusing or ambiguous adverts are a key source of detriment for retail consumers.

Where at times products are being sold based upon inaccurate descriptions of the costs involved, the returns you’ll get, or the risks you’ll be undertaking as a consumer.

But current powers mean that – more often than not – the regulator is unable to publish details of the action it takes to deal with misleading financial promotions.

So, as part of our consultation, we’re proposing that the FCA should be able to publish all the details relating to the withdrawal of misleading advertisements.

This will increase confidence in the regulator’s ability to protect consumers.

Make the actions of the regulator more understandable to consumers and to the industry as a whole.

And engender better practice across financial markets, by making firms’ misconduct more visible to the general public.


But these reforms are not just about new powers for the regulator, and greater transparency requirements on firms.

The Government will ensure that the regulator will be accountable to those it regulates…

…through requirements to consult and carry out cost benefit analysis

…through statutory panels, including a new markets panel

…and through the principles of regulation on openness and transparency which set out how we can expect the regulator to behave.

And we want to go further and see greater accountability and transparency where things go wrong

We will therefore legislate for the FCA to be required to make a report to the Treasury where there has been significant regulatory failure…

…and for this report to be laid before Parliament so industry and consumers can see what went wrong and why.

FOS and the FCA

We are also planning to reinforce the distinction between the roles of the FCA and the Financial Ombudsman Service, to give firms greater clarity and certainty.

We need to strike the right balance between the role of the regulator in preventing or intervening early in issues which may have a wider impact…

…and the role of FOS in resolving individual disputes between consumers and firms.

So we will strengthen and formalise the cooperation and coordination mechanisms between the FOS and FCA through a statutory requirement to produce an MOU.


So in conclusion, it is true that the FCA will be more interventionist than the regulatory authorities of the past.

And the Government makes no apologies for that fact.

Having a strong and focussed conduct of business regulator will be an asset to our economy – and to the financial sector itself.

It will help instil a sense of trust in the services you provide.

It will preserve our country’s reputation as the world’s leading financial centre.

And it will create new opportunities for you, the industry, by giving everyone, regardless of their financial acumen, the confidence to invest in the products you supply.

I look forward to hearing your views on this matter.

Your ideas for how the FCA should operate.

And your thoughts on how we’re progressing.

So that together we can build a stronger financial sector.

One that helps drive the economic recovery; meets the needs of business; and works to deliver the right outcomes for its customers.

Thank you.