Part of April’s Financial Services Act 2010, the new power was activated today through a Commencement Order laid in Parliament by the Treasury.
It will be used in instances where the FSA sees evidence of widespread or regular failings at firms leading to customer detriment.
The power is designed to deal with issues affecting a number of firms, rather than individual companies, and a cost-benefit analysis and consultation will have to be undertaken each time the regulator wants to establish a redress scheme.
Sally Dewar, the FSA’s managing director of risk, says: “This is an important new tool for the FSA, which increases our ability to get redress for consumers when firms have not followed our rules.
“The power would obviously be used proportionately. It is not a substitute for working with industry where there is the potential to bring an issue to a fair and speedy conclusion.
“The FSA will, however, seek to use this power where necessary to ensure consumers are fairly treated.”
Under a consumer redress scheme, firms would be required to undertake a proactive file review of all cases falling within the period covered by the scheme.
They would also have to contact customers to find out if they would like their cases to be investigated under the scheme and publicise the very existence of the scheme.
Which? chief executive Peter Vicary-Smith descibes the introduction of the new power as “good news” for consumers.
He says: “From endowment mortgages to payment protection insurance, the financial services industry has consistently dragged its feet when it comes to paying proper redress to consumers.
“It is important the FSA makes full use of this power to require firms to review their past sales and pay proper redress.”
The Commencement Order has also given the FSA the power to publish decision notices as well as final notices.
This means it can publicise enforcement actions earlier, rather than only at the stage of a final notice after a long delay where a person has appealed to the Tribunal.