FSA promises more pro-active stance on selling of financial products

Written by Ray Clancy

Monday, 15 March 2010 09:11

The UK’s financial watchdog has pledged to end reactive regulation and deliver a new approach involving early detection and intervention.

Financial Services Authority chief executive Hector Sants said that the future will involve intensive supervision giving financial consumers more protection.

Speaking at the annual Lubbock Lecture at Oxford University’s Saïd Business School, Sants explained that the new strategy signals the end of ‘reactive regulation’ where, historically, the FSA waited for clear evidence that a product had been mis-sold and consumers harmed before it took action and relied principally on risk disclosure information at the point of sale to avoid mis-selling occurring.

This will involve seeking to improve the long term efficiency and fairness of the market, he explained. ‘This builds on initiatives we have recently undertaken such as the Mortgage Market Review,’ he said.

The new supervisory approach will ensure firms treat their customers fairly and will equip the FSA to intervene earlier in the development of retail products, he continued. ‘Interventions of this nature which necessarily involve us making a judgement on potential detriment will need to be based on sound business-model analysis and integrated firm-risk assessment,’ said Sants.

‘In the event that failure has occurred we will secure the appropriate level of redress and compensation, when justified, and achieve effective credible deterrence by taking tough action against firms and individuals who have transgressed,’ he added.

‘There will also be a greater willingness to test outcomes through mystery shopping and on-site visits. Furthermore, the FSA will also improve the framework and delivery of redress to consumers, starting with a review of the complaint-handling standards of all the major banking groups,’ Sants continued.

‘A successful consumer protection strategy must restore consumer confidence in the financial market place. A key element of restoring that confidence is that the consumer can trust the regulator. This strategy will restore trust in the regulator and will benefit everyone, consumers and providers. A regulator must be willing to place themselves between consumers and harm. We will only achieve this by taking a proactive stance,’ he added.

The decision to be more pro-active was welcomed by consumer giant Which? ‘For too long consumers have suffered as a result of systemic mis-selling by the financial services industry. This move by the FSA is clearly a step in the right direction, but consumers will only really benefit if the FSA shows its teeth when tackling the issues they identify,’ said chief executive Peter Vicary-Smith.

‘We need to move away from the situation we have seen with PPI, where the FSA carried out endless rounds of mystery shopping before opening consultations, to an approach where they nip issues in the bud before consumer detriment rockets,’ he added.