Built on sand?
At the Treasury's request, the FCA has published plans for a 'regulatory sandbox' in which businesses can play with new, innovative products, services and business models without "all the normal regulatory consequences".
The options under consideration include 'no enforcement action letters' (NALs), Individual Guidance and Waivers. The four options for safeguards for consumers, set out in appendix 4, include:
- informed consent from participating customers;
- case-by-case disclosure, protection and compensation requirements;
- no change (so complaints, FOS and FSCS as normal); or
- businesses pre-agree to compensate losses and must demonstrate in advance they have the capital to do so.
The aims are as laudable as those of Project Innovate – on whose first anniversary the sandbox idea is being launched – but the key hurdle persists: FOS. A stated risk and drawback of the waiver option is that "Waivers could affect FOS assessment if the firm otherwise acted in accordance with its obligations, and fairly and reasonably (civil claims for damages for breach of statutory duty might be hampered)".
The case-by-case safeguards would be undermined because: "If the FOS has jurisdiction, it would not have to abide by the arrangement agreed between firms and the FCA. Consumers cannot contract out of the FSCS." A foot note observes that the FCA could bind FOS to the terms of a s.404 redress scheme – but not otherwise. Stating the obvious, the FCA says option 4 provides the highest level of protection but would "become an unattractive tool that only larger firms with significant resources could use". The FCA prefers option 2 – case-by-case – but there's no current plan to put FOS back in its (sand)box.
The determined repetition of the mantra about FOS' operational independence prevents the FCA's aspirations of innovative solutions becoming a reality. Consumer responsibility and 'safe harbours' from liability are probably the only effective solutions – and they will take significant political will and regulatory change.
Until FOS confirms it too will relax its standards, we'll be building sandcastles in the sky....