Warning of risk to consumer protection

THE planned shake-up of financial services regulation could pose a threat to the protection of consumers, it has been claimed.

Regulation of the industry is set to be split between the Bank of England and the newly created Consumer Protection and Markets Authority (CPMA) when the Financial Services Authority (FSA) is disbanded in 2012.

But Adam Phillips, chairman of the Financial Services Consumer Panel, told Scotland on Sunday that failure of the CPMA and the Bank to work together when they replace the FSA could be destructive. The creation of the CPMA showed that the government is aware of the need for regulation that provides consumer protection, said Phillips, but he warned that the function could take a back seat as the FSA's attention switches to the restructuring.

"It could be very hard to maintain momentum over the next two years and there is a risk that a lot of focus is lost during the transition period," he said.

"The FSA's senior management are already spending a lot of time on the transition and less time on regulation."

Phillips said the FSA had become more effective in recent years, pointing to the establishment in early 2009 of a Conduct Risk division focused on identifying products and services with the potential to create consumer detriment. And he expressed concerns that the lessons learned since the FSA was set up by the Labour government in 2000 should not be lost.

"We have to ensure the emphasis on the prudential side is joined up with the conduct of business side," he said.

"The challenge will be in creating an effective working relationship between the macro-prudent stability objectives and the CPMA, concerned with the conduct of business and the markets."