Does UK and EU legislation and regulation inspire investor confidence in the UK financial services industry?

FCA can really inspire investor confidence by setting up new regulations for the market. Firstly, insurers, banks, brokers and anyone who sells payment protection insurance now need to make sure that the cost of payment protection insurance is made clear in all their marketing material be it printed brochures or their website. If it is a lender or a mortgage broker selling the payment protection insurance, they also need to make it clear that the cover is optional, and that the payment protection insurance can be purchased from other providers. Secondly, the insurers and or brokers have to set up annual reviews and bring the cost of payment protection insurance to the attention of the policyholders. They also have the obligation to let their customers know that they can cancel the policies at the annual review date without any penalties.

Although the FCA intervene into the market, some problems may still exist. In the case of PPI mis-selling, the role of the FCA is preventing, detecting and responding to the issue. Their actions or measures to the PPI mis-selling may not have persuasiveness. This is because the FCA does not link the outcomes from its regulatory activities to their associated costs and this means it could not know whether it has taken the cost-effective actions. It also has to check that changes in firm behavior, rather than short-term responses to regulatory pressure that could fall away if the regulator’s focus moves elsewhere. This means the regulation can only give a short-term pressure to the firm and the regulator has no incentive to fix the root of the problem. For the future, the regulator should open courses for people to understand how PPI works.

Apart from regulations from FCA, regulators also introduce legislations to protect consumers in the UK. There are several consumer protection laws, such as, Consumer Credit Art 1974, Data Protection Act 1998, consumer rights act 2015 and code of advertising practice. They are based on the law and companies have obligation to follow all the rules. Particularly, The Data Protection Act 1998 can really protect customer’s rights. This Act gives customers the right to know what information companies hold on you and how they are going to use it. Consumers have the rights to stop information being used and receiving any marketing mails or post from the companies. Once the customers ask the company, they have to respond to the request within 21 days. Those legislations can inspire consumers’ confidence because they are based on the law. If companies do not follow the act, they might be sued or fine. Moreover, every company has obligation to follow the rules and the government supervises them.

However, it is hard to avoid our personal information held by companies. For example, when we get a loan from the bank, they require our personal details and it is essential for the company. This Act only protect our personal details not to be used for marketing purpose but we cannot know how firms are going to use it. For instant, if companies sold our personal information to other companies, it is very hard to investigate. It is because other companies can cover up the truth, which is called collusion.

Another method that helping to inspire consumer confidence is EU legislation, such as the Investment Services Directive 1993, Capital Adequacy Directive 1995 and New Basle Accord 2001. Those legislations aim to regulate firms and protect consumers’ rights. For example, the legislation of New Basel Accord 2001, which provides recommendations on banking regulations in regards to capital risk, market risk and operational risk. The purpose of the accords is to ensure that financial institutions have enough capital on account to meet obligations and absorb unexpected losses. The legislation separates into three parts. The first part is about rating the bands of the financial institutions by Basel Committee on Bank Supervision. The purpose of this measure is to give information to consumers to know more about the financial institutions, whether it is trustworthy or not. The bands are rating from the best scores (AAA) to the worst (unrated). This is a form of recommendation that help consumers to make decision and protect them. This legislation also regulates financial institutions to have minimum capital in the account in regards to risks in the market. The main advantage is ensuring financial institutions have sufficient money to face any problem and reduce the least influence to the market and consumers. The second part of the legislation asks the financial institution itself to assess their own risks. In the process of investigation, supervisors will get involved and take responsibility for the investigation. As a result, this encourages supervisor not to hide any facts and report the truth. This means consumers can have a fair view and foreseeable future. The third part is about disclosure. The financial institutions have obligation to disclose any problems and risks they are facing to the public. This legislation can raise the public confidence because financial institutions are fully regulated. All Financial institutions are restricted to follow the rules, which provides a foundation for the market and consumers.

However, the external factors are changing all the time. Although the legislation regulates financial companies to assess their own risk, the investigation does not included any risk from the market. It is because all the external factors are unexpected and unpredictable. As a result, it does not really help consumers and investors to understand the risk of the company. On the other hand, companies assess their internal risks and vales itself which means their investigation could be subjective. They may hide the fact in their report, which may mislead investors. In addition, supervisors may not analysis the risk objectively and minimise the seriousness of the risk. Despite the fact that disclosing the investigation and document to the public, it doesn’t mean all the investors can understand all the content. The investigation and documents are involved academic and wide range of specific language. Besides, all reports are long and profound. This means not all the investors can understand the report completely. Overall, some of the regulations may not really help to inspire investors’ confidence.

In conclusion, UK and EU legislation and regulation can inspire investor confidence in the UK financial services industry. There are different regulation bodies in the UK, such as Bank of England, the FCA and the PRA. Their role is monitoring and ensuring the market system is working without any problem. They regulates UK financial firms in order to protect the investor and consumer in the UK. Bank of England has the most important roles, which is the central bank of the England. Every measures they made can influence the market. As a result, the regulations from the Bank of England can really regulate the market. When firms are fully regulated, consumers’ confidence may likely to raise. UK and EU legislation, which were set up many years ago. However, those Acts will be updated regularly. This makes sure the Act is up-to-date and work dependent with the market. This can restrict firms to follow their rules in order to ensuring the market and firm are supporting the whole UK economy system. Updating regularly can ensure firms find and use the grey zone to avoid regulation. Finally, I firmly believe that the regulations bodies, legislation and financial services legislation can inspire investors’ confidence as those regulation bodies are work under government and legislations have real power to restricting firms and the market.