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Banks Face ‘Dynamic’ Inquiry of Retail Products, FSA’s Cole Says

The agency replacing the U.K.’s Financial Services Authority will be more “dynamic and interventionist” than its predecessor when evaluating financial products geared toward consumers, said Margaret Cole, the FSA’s conduct business chief.

“There’ll be a shift in the relationship” between firms and the regulator, Cole said in a telephone interview in London today. The Financial Conduct Authority, which is due to start work by 2013, “will be more consumer-centric” as opposed to the “firm-centric approach” the FSA took, Cole said.

The FSA, the U.K.’s financial regulator, will be abolished by the end of 2012 and replaced by at least two new authorities as part of an overhaul of financial supervision. The FCA will have new powers to ban risky financial products or assert itself in how they are marketed, as well as to publish information about its disciplinary investigations earlier.

The FCA may investigate “products being developed to replace lost revenue streams” from things such as payment-protection insurance, Cole said.

PPI generates as much as 5.5 billion pounds ($8.8 billion) in annual revenue for U.K. banks, with about 6.5 million policies sold in 2006, the FSA has estimated. The insurance is used to cover payments on credit cards and mortgages in case of illness or unemployment.

U.K. banks including Barclays Plc and HSBC Holdings Plc may face costs of as much as 4.5 billion pounds after losing a bid earlier this year to stop the FSA from requiring banks to compensate customers who were sold the insurance improperly.

Enhanced Confidence

“The style is coming across very clearly,” said Simon Morris, financial services lawyer at CMS Cameron McKenna. “The government expects early intervention and the FCA will be happy to deliver it.”

The FCA will “aim to protect and enhance confidence in the firms and markets it regulates,” the FSA said in a report on its website today. The agency will be led by Martin Wheatley, who is currently Hong Kong’s top financial regulator.

“Trust in the financial-services sector is at an all time low and the new regulatory arrangements provide the opportunity to restore confidence in an industry which has generated in excess of 15 billion pounds detriment over the last two decades,” Hector Sants, FSA chief executive, said in an e-mailed statement.

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