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By Brooke Masters, Chief Regulation Correspondent
Published: January 24 2011 22:30 | Last updated: January 24 2011 22:30
The head of the Financial Services Authority has called for a “radical rethink” of consumer protection in the UK, including the possible imposition of fee caps and bans on some retail financial products.
The regulator has historically adopted a “light touch” approach for the regulation of financial products, emphasising full disclosure, but the financial crisis and a series of mis-selling scandals have forced politicians and regulators to reconsider.
“The way we do things now is not good,” Lord Turner, FSA chairman, told the Financial Times as the regulator prepared to issue a formal discussion paper on consumer protection. “We may have to put what is expected into rules to make it easier for us to say what is not [acceptable].”
The FSA is not the only regulator trying to tighten rules. The US has established a consumer bureau to oversee mortgages and credit cards , while the Securities and Exchange Commission recommended last week that brokers be required “to act in the best interest” of their customers.
French regulators recently announced plans to put written warnings on products they consider too complex for retail investors. In the UK, regulators have already begun shifting to “more intrusive” supervision of financial products. The FSA now asks more questions when companies record large gross margins on the sale of a particular product, and is also increasing scrutiny of bundled products and sales of related-party investment products by financial advisers.
The FSA recently refused to authorise a new firm that wanted to sell a “toxic” product that had previously been the subject of consumer complaints. But the discussion paper goes further, asking whether parliament should grant financial regulators new powers when it draws up legislation to break up the FSA in 2012, creating two new regulators.
According to Lord Turner, the planned Consumer Protection and Markets Authority could be empowered to set maximum prices for particular services, require or ban particular features in complex products, or mandate risk warnings on some offerings. “This is a radical shift. We’ve made part of the shift already . . . but now we are asking how radical we should be,” Lord Turner said.
Industry representatives objected when Lord Turner and Hector Sants, FSA chief executive, first raised the issue of product regulation last year. They argue heavy-handed regulation will increase costs and reduce consumer choice.
The FSA began discussion on some of these issues as part of its review of the mortgage market, and is taking steps to ban self-certified mortgages
FT.com / Companies / Financial Services - FSA chief seeks new consumer safeguards
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