BUILDING OUR UNDERSTANDING OF THE MARKETS
At Day One, firms will be able to access online:
• the FCA Handbook, displaying conduct provisions that apply to all regulated firms and the prudential provisions that apply to firms prudentially regulated by the FCA;
• the PRA Handbook, displaying provisions that apply to firms prudentially regulated by the PRA; and
• a combined version, displaying the provisions of both Handbooks, with clear ‘badges’ indicating which regulator applies each provision to firms.
We plan to make the new Handbooks available before Day One to help firms prepare for the transition to the new regulators.
Over time, the way our principles, rules and guidance are presented and organised in our FCA Handbook, and in non-Handbook material, will inevitably change. As it does, we will take the opportunity to change the way we present material to make it more user friendly and accessible. We will take account of the views of our stakeholders before introducing changes to achieve this. In addition, we and the PRA will be required to cooperate, coordinate and consult with each other over relevant changes to our rules and requirements.
Once established, we will review the way we present our Handbook and other guidance materials. For example, we are already reviewing the way that non-Handbook guidance – letters to firms, issues and product reviews, case studies, etc – can be used as an effective tool for firms. We want to issue more concise and clearer guidance than previously.
Engaging earlier
We will talk to the people our policies affect and listen to their ideas right from the outset so as to include their views in the development of policies where appropriate.
Using behavioural insights to deliver better outcomes for consumers
Insights and techniques from the behavioural sciences and behavioural economics have great potential to explain why people make predictable mistakes when choosing and using financial products and services. All consumers are prone to make mistakes because of their inherent biases, and because financial decisions are complex: it is hard to make trade-offs between the present and the future when saving or borrowing, to assess risk and uncertainty when buying insurance or investing, or compare complicated products across the market.
Firms often react to these mistakes, and consumers can be harmed even if that is not the intention. The presence of biases can affect the nature of competition in markets, leading firms to compete in ways that are not in consumers’ best interests or to set prices with little regard to the prices of their competitors (known as ‘market power’).
Behavioural biases can also interact with other problems in markets, such as barriers to entry or information asymmetries.
We will use behavioural economics to better understand consumer behaviour and how firms exploit behavioural biases. We will apply behavioural theories when identifying potential problems, diagnosing their root causes, and designing and testing remedies. When needed, we will target interventions to stop exploitative practices. Behavioural economics will also help us determine what level of protection consumers need and where we should set the limits of consumer responsibility. We will address other issues, such as clarifying when seemingly mistaken choices may reflect the genuine desires of consumers.
The FSA intends to publish a paper before Day One on the existing evidence on consumer behaviour in retail financial markets. Following the launch of the FCA we will also publish original research that tests and evaluates behaviourally informed regulatory interventions with the aim of finding out what works best for consumers.
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