The Financial Conduct Authority (FCA) has said it will look to take even earlier pre-emptive action against what it believes is bad practice in a bid to counter accusations from the industry that it unfairly employs retrospective regulation.
The regulator used its early intervention powers 31 times in 2014, up from 14 in the previous 12 months.
Now this figure looks set to rise even further, in what is likely to be an unexpected consequence of complaints from the industry that the FCA has a habit of applying a more demanding standard or interpretation of its rules after the event.
The concern most often raised by financial firms was that "previous inaction [by the regulator] suggested either approval or regulatory indifference", the FCA said.
If a practice is unfair, it is unfair, and the regulator should have the tools to fulfil its objectives
Firms had "taken this as a sign that they could continue, for example, selling certain products".
When the regulator turned its attention to a particular situation, the feeling was that it was, in effect, changing its mind.
This industry perception points to the need for the regulator "to intervene at an earlier stage to avoid the development of problems over a long period, particularly where firms draw a conclusion that the regulator does not perceive there to be a problem", the FCA said.
Its comments are in response to feedback from the industry, which the FCA, when faced with criticism of retrospective regulation, asked for examples.
It received 36 responses, including 16 from individuals and eight from intermediaries. The issue most frequently raised was the treatment of traded life policy investments (TLPIs), such as Keydata and EEA Life Settlements, in particular the FCA's predecessor, the Financial Services Authority, branding them as ‘toxic' and the consequent fall in their value.
In short, the FCA's response was that it believes that the FSA's intervention in this market - banning the marketing of the products to retail investors - was justified.
Past business reviews were also a bone of contention.
But the FCA it does not represent retrospective regulation.
"Sometimes, the fact that there has been a problem with advice or selling practices may not become clear until some time after the event and it is only at that point that action can be taken," it said.
"In the case of past business reviews, such as s166 reviews, or the review of legacy products, the challenge from industry is that it is not possible to consider these except through the lens of the present.
"We are careful to ensure that we only impose a s166 review where it is appropriate and proportionate to do so and ensure that the review is assessed against the rules in place at the time."
Decisions by the Financial Ombudsman Service (FOS) were the second most-frequently raised example of applying a more demanding standard or interpretation of the rules after the event.
The FCA dismissed the charge: "Firms that operate in accordance with our rules, and in particular, with our principles of business, are unlikely to receive an Ombudsman decision against them," it said.
It added that it recommends firms ensure lessons learned as a result of determinations by the Ombudsman are effectively applied in future complaint handling.
Consumer protection is its primary concern, the FCA said.
"If a practice is unfair, it is unfair, and the regulator should have the tools to fulfil its objectives, primarily appropriate protection for consumers," it said.
While the FCA said it is "conscious of hindsight bias" and is "vigilant against the risks that we judge actions by rules not in place at the time", the regulator must have the "freedom to change its mind where it believes to do so would fulfil its objectives".
