This week in regulation


The Speed Read

  • Where are all the female economists? - FCA Chief Economist (and woman) Mary Starks comments
  • Weighing up the cost of vulnerability - how do we best measure and assess vulnerable customers?
  • Fines and enforcement update - FCA throws Flowers out for good
  • Retail banking review - FCA publishes findings of a review into product governance

Where are all the female economists?

To celebrate International Women’s Day, the FCA Insight team released an interview with Mary Starks, the FCA’s Chief Economist on why the industry is so male-dominated and how to encourage more women into the industry. We bring you the highlights.

Ms Starks got into economics thanks to her interest in understanding what makes the world tick and her strong problem-solving skills, both of which lend themselves well in the field. She highlights that, although there are a number of accomplished female economists visible in public life, they don’t account for 50% of well-known economists, which contributes to the perception that it is a male-dominated industry. The discipline has also become very maths-heavy in recent years, a field which is burdened with its own gender imbalance. These factors combined can alienate women from economics.

There’s a growing feeling that economics should focus less heavily on mathematics and instead bring in history, politics, anthropology and ethics into economics education. These subjects have a more equal gender mix, which could certainly help to encourage more females into the profession.


Weighing up the cost of vulnerability

More consumers it appears, fall into the category of ‘vulnerable customers’ than many would originally assume, and the scale of vulnerability across the UK is exceptionally complicated, making it a challenge for regulators to appropriately address the issues that often arise as a result.

Prior to any regulatory intervention, regulators must weigh up the costs and benefits of any activity. Is it possible to factor vulnerability into these assessments, and if so, how can the FCA use this to help protect those most vulnerable to financial detriment? FCA Technical Specialist Gianandrea Staffiero examines this issue in his latest article for FCA Insight.

Regulatory intervention designed to increase consumer protection or ensure appropriate redress is particularly beneficial to vulnerable customers as their particular characteristics make them more susceptible to a higher frequency and intensity of detriment. As a result, there’s a strong case for considering vulnerability as part of an assessment of appropriate regulatory interventions.

First, regulators would need to consider the features of vulnerability most relevant to a particular policy change. A qualitative judgement then needs to be made around how much impact an intervention is likely to have on those with relevant vulnerabilities. However, this also raises the question of whether a quantitative assessment should also be made. Many policymakers have opted to group citizens with similar circumstances and apply an appropriate weighting to each group. Income-based weighting is a common example of this.

Applying quantitative welfare rights to vulnerable consumer groups could provide a clear and transparent rationale for regulatory intervention that may not have been apparent had the assessment focussed on net public value. But income-based weighting does have its downsides, including issues with accurately measuring incomes and the difficulty in determining appropriate measures for vulnerabilities that stem from other factors.

Mr Staffiero argues that income-based weighting can be a useful guide for certain interventions, however, it’s important to ensure that all aspects of vulnerability are considered in order to ensure the market provides real opportunities, not threats, for those in difficulty.


FCA fines and enforcement activity

Two firms placed into insolvency and restrictions imposed

The High Court has appointed administrators to two firms following an urgent appeal from the FCA. This action follows an assessment of the firms’ financial position, which led the regulator to believe both firms to be insolvent and may be involved in financial crime.

The regulator is also assisting the United States Justice Department with its investigation into one of the companies, which has been charged with serious fraud and money laundering violations.

Both companies are restricted from undertaking any regulatory activity or disposing of any firm or client assets without the FCA’s consent as neither firm satisfy the regulator’s threshold conditions of having appropriate resources, suitability and effective supervision.

FCA fines and bans former trader

A former short-term interest rate derivatives trader has been fined £180,000 and banned from performing any function in relation to a regulated activity. During his employment at a leading wholesale bank, the accused traded products relating to the CHF (Swiss Franc) and JPY (Japanese Yen) LIBOR and acted as the primary JPY LIBOR submitter for a limited period.

Between 25th July 2008 and 11th March 2010, the individual:

  • Improperly influenced the firm’s LIBOR submitters to benefit his own trading positions;
  • Took his own trading positions into account when acting as primary submitter;
  • Arranged with a trader at another LIBOR panel bank to make submissions that took into account the other trader’s requests.

This misconduct threatened the integrity of the JPY LIBOR benchmark and demonstrates that he is not a fit and proper person to perform any regulated financial services role.

Regulator bans former bank Chair from the financial services industry

The former Chair of a leading high-street bank has been banned from performing any future role within the industry after his conduct demonstrated that he lacked the fitness and propriety to work in regulated financial services.

His conduct, while serving as Chair, highlighted an unwillingness to comply with relevant legal, regulatory and professional requirements, including:

  • Using his work telephone to make inappropriate calls to premium rate lines in breach of bank policy;
  • Using his work email account to send and receive sexually explicit messages and discuss illegal drugs, even after being warned about his misconduct.

After stepping down as Chair, he was also convicted for possession of illegal drugs.


FCA publishes product governance in retail banking review

As part of its ongoing supervision of the retail banking sector, the FCA has published its findings of a review into product governance in small and medium-sized retail banks.

The review examined a sample of two-year fixed rate savings products, particularly how the firm’s product governance framework helped them identify and manage the risks presented by their products. In particular, the FCA considered:

  • How firms identified and responded to risks arising from changing customer needs and other external factors;
  • Whether the product governance framework provides appropriate challenge to the firm’s risk assessment assumptions;
  • How effective product governance reviews were at identifying potential consumer harm, providing actionable management information (MI) and acting upon customer feedback.

The regulator found:

  • All firms reviewed had product-focussed committees in which to raise product issues and make decisions. Some had separate committees for product conduct and commercial issues, while others covered both in a single committee;
  • Senior managers were involved at all stages of the decision-making process, with a clear understanding of the areas for which they were accountable. Feedback highlighted that the Senior Managers and Certification Regime had clarified this;
  • Product governance frameworks were in place to cover all stages of the product lifecycle;
  • Well-established product design processes are in place across the firm’s reviews, however, this isn’t always the case for product review processes;
  • Firms are capturing feedback as part of their review processes;

As part of this update, the FCA has provided a number of clear examples of good practice as well as areas where the regulator believes improvements could be made. Retail banks should review these areas of their business to ensure they are meeting regulatory expectations.

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