The Treasury Select Committee is launching an investigation into the new Financial Conduct Authority (FCA) to make sure the regulator is accountable and gives value for money to consumers.
The inquiry will start in the autumn. It will give the FCA's new head, Martin Wheatley, a bruising start to his job after he leaves Hong Kong's financial regulator to join the watchdog in early September.
The MPs' probe, hinted at in its response to last week's Retail Distribution Review, will run alongside their existing scrutiny of accountability at the Bank of England before responsibility for financial regulation is split up next year.
The committee wants to make sure the FCA acts not in a bureaucratic fashion that protects its own interests by imposing heavy-handed limits on firms without taking consumers' interests into account.
Andrew Tyrie, chairman of the committee, said: "Regulation may look like it's free but in the end all regulation is paid for by consumers. They pay a fortune and sometimes they must wonder what they get for it."
The Government is breaking up the Financial Services Authority (FSA) after it failed to spot the brewing financial crisis and only belatedly clamped down on abuse of consumers such as sales of payment protection insurance.
Responsibility for ensuring financial stability will go to the Bank of England, while consumer protection and punishing market abuse will be the FCA's remit.
Financial firms – from multinational banks to sole traders – will pay a levy to fund the FCA, but Mr Tyrie points out that the cost is ultimately passed on to consumers in higher charges.
Mr Tyrie said: "Regulators are there to act in the interests of consumers, not to give a quiet life to the regulator or easy profits to businesses. We need an accountability structure to make sure the consumer gets value for money."
The FSA's prudential regulators are moving to the Bank of England, headed by Mervyn King, who has pledged to clamp down on risky actions. By contrast, the FCA is being carved out as a new institution, and the Treasury Committee is concerned that it will pick up where the FSAleft off.
The FSA launched the blueprint for the FCA last month and promised tougher action to ban bad products after mis-selling cost customers about £15bn over the past two decades. In addition, Britain's banks are expected to spend up to £9bn compensating victims of dishonest sales of PPI.
The committee's inquiry highlights the dilemma facing the regulator, which is under fire for failing to clamp down on products that exploited consumers but also faces criticism for taking reactive action to protect its own reputation.
The FSA put its aims for the FCA out for consultation last month so that the industry could comment on the proposals.
At the time, Margaret Cole, who is heading the transfer to the FCA, warned that banks were trying to rebuild their incomes and that they could be working on products as bad as PPI.She said public and politicians would have to get used to the idea of the regulator failing in its clampdowns and added that it would anger some people by axing products.
Mr Tyrie acknowledged that for the FCA to work properly politicians would have to move away from the "one-way ratchet" that sees regulators lambasted whenever consumers lose out. A spokesperson for the FSA declined to comment.Reuse content