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OFT may lose regulatory role - 26/07/2010

The regulation of consumer credit could be removed from the Office of Fair Trading and placed to a new body – the Consumer Protection and Markets Authority (CPMA) – under proposals unveiled today.

The proposal was revealed this morning in the Treasury’s consultation paper on the future of financial regulation in the UK.

In the paper the government states that it intends to consult on the merits of a transfer of responsibility for consumer credit from the Office of Fair Trading to the new CPMA.

This consultation, to be published jointly by the Treasury and the Department of Business, Innovation and Skills in the autumn, will consider how the legislative framework underpinning consumer credit regulation might be simplified and brought under a single regime.

The FSA and OFT regulate around 29,000 and 99,000 firms respectively, and 16,000 of these are jointly regulated. The Treasury has admitted that this division can lead to confusion.

Its paper also states that the CPMA will be independent of Whitehall and the government at large, and will take the form of a company limited by guarantee, with funding provided by financial services institutions.

In terms of the general picture for financial regulation, the Financial Services Authority would be disbanded and replaced by the CPMA along with another new body, the Prudential Regulation Authority (PRA). Both would come under the oversight of the Bank of England.

The Treasury said the plans would cost £50m spread over three years.

Financial secretary to the Treasury Mark Hoban said: "The government is delivering on its commitment to reform the financial system, to avoid repeating the mistakes of the recent financial crisis and to ensure that taxpayers are protected. Today is a crucial milestone in our programme of reform."

The paper also reveals how responsibilities would be divided up between the two new regulators. The CPMA would take on the FSA’s responsibilities for conduct of business regulation, along with oversight of the Financial Ombudsman Service, Financial Services Compensation Scheme and the Consumer Financial Education Body.

Under new legislation yet to emerge the CPMA would be subject to audit by the National Audit Office.

The PRA would assume responsibility for prudential supervision of all deposit-taking firms, insurers and investment banks.

Around 1,500 to 2,000 financial services firms which would be regulated by both the CPMA and the PRA could face higher ongoing costs to pay for the new regulatory structure.