The Treasury Select Committee has called for the Financial Conduct Authority (FCA) to be granted greater formal regulatory powers, claiming its current regulatory perimeter is “insufficient”.

MPs of the committee were tasked with examining the powers of the watchdog and identified a “grey area” between regulated and non-regulated activities in financial services which is open to exploitation.

As a result of this finding, the committee argued that the regulator requires formal powers to recommend to the Treasury changes to the perimeter of the activities, industries and practices it is responsible for lending, which are ultimately defined by parliament.

At present, the Treasury is responsible for establishing the perimeter on the basis of an informal relationship between it and the FCA, which, according to the report, is “insufficient”.

“The FCA should be given the formal power to recommend to the Treasury changes to the perimeter of regulation, with all recommendations publicly disclosed, providing greater transparency and focus to the process.”

Speaking to the committee, FCA chair Andrew Bailey said he is “personally very unhappy […] with the complexity of the perimeter of regulation”, noting that “bad people” may look to exploit the grey area between where a consumer leaves and protection and where they remain protected.

According to the committee, included in the grey are SME lending, mortgage prisoners, so-called mini bonds and cryptoassets.

It also makes clear that the FCA must not feel constrained from providing warnings on financial products that sit outside the perimeter, but may cause consumer detriment, such as cryptoassets.

The committee argued the FCA should be given the remit to identify the potential risks to consumers of an unregulated activity, while also recommending that the Treasury should review the data-gathering powers of the regulator. The committee said that, under the current perimeters of the FCA’s data-gathering abilities, regulatory action “will always be reactive”

The recommendations concluded: “If it is not content to implement the changes as recommended by the committee, HM Treasury must acknowledge that it has itself fully retained these responsibilities, and should report annually on the work it will do to monitor the perimeter of regulation.”

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