The Treasury Select Committee is calling for the Financial Conduct Authority (FCA) to be given greater formal regulatory powers.

A report set out the committee’s views that the scope of the financial watchdog’s regulatory perimeter is currently “insufficient”.

The committee’s MPs, who were tasked with examining the powers of the FCA, pointed to a “grey area” between regulated and non-regulated activities in financial services which is open to exploitation.

As a result, they argued that the regulator needs formal powers to recommend to the Treasury changes to the perimeters of the activities, industries and practices it is responsible for regulating, which are ultimately defined by parliament.

Currently, the Treasury is responsible for establishing the perimeter on the basis of an informal relationship between it and the FCA, a situation the report stated 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.”

The chair of the FCA, Andrew Bailey, told the committee that he is “personally very unhappy […] with the complexity of the perimeter of regulation”, adding that “bad people” may wish to exploit the grey area between where a consumer leaves protection and where they remain in it.

This “grey area” encompasses SME lending, mortgage prisoners, so-called mini bonds and cryptoassets, the committee said.

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.

This week the FCA issued a final report into cryptocurrencies, warning that they have “no intrinsic value”.

The FCA should be given the remit to highlight the potential risks to consumers of an unregulated activity.

The committee also recommended that the Treasury should review the data-gathering powers of the FCA, with a focus on the fact that the current perimeters mean their ability to gather information on consumers means that 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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