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Categories:Regulation

FCA admits costly disclosure rules have failed advisers and consumers

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The FCA has admitted its disclosure rules have failed the financial services industry and consumers, whilst warning that new European proposals could cause further problems.

Speaking at a fringe event at the Conservative party conference in Manchester last week, FCA director of enforcement Tracey McDermott admitted that its product disclosure rules had added unnecessary costs for firms and created complexity for consumers. 

She said: “We are looking at how we can make regulation more effective. That means making more targeted interventions with the maximum impact for the minimum disruption.

“We need to work out how we distinguish between those interventions and those that add cost and complexity. One of those areas has been increased disclosure which has added cost to firms and created more complexity for consumers but has it really had the outcomes we want? No. What we are really trying to work out is where and how we should intervene.”

She said the FCA’s new approach to behavioural economics had changed its thinking. An FSA behavioural finance report, published earlier this year, suggested that providing too much information could lead to poor decision-making but this is the first time the regulator has publically admitted its disclosure failings and the damaging effect they have had on advisers and consumers. 

Separately, the FCA has also criticised the scope of EU disclosure rules and packaged retail investment product regulations which will require a fresh Key Information Document.

Advisers and asset managers have been raising concerns about duplicating information and disclosure requirements expanding into areas such as bonds, shares and savings accounts. 

Speaking at the Wealth Management Association conference in London this week, FCA chair John Griffith-Jones said: “On Prips we want disclosure on complex products which are hard to understand, but not necessarily on all individual share, bond and saving account transactions that meet different consumer objectives. This should also avoid distribution aspects and practices already covered in other directives such as Mifid II.”

Worldwide Financial Planning IFA Nick McBreen says: “McDermott is spot on. There is a tsunami of paper and information which consumers are inundated with and it serves no purpose.”

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Readers' comments (16)

  • Ian McKenna

    Refreshingly open and candid admission from the FCA, hard too imagine the FSA ever being so frank. If they deliver on this it will be a great step forward.

    It may be many of the same people but on this evidence with new and constructive approach.

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  • Malcolm Coury

    This is tantamount to the FCA admitting they don’t know what they’re doing and making things up as they go along, which is what most of us have suspected for years. As a sector we waste £millions trying to comply with unnecessary rules and regulations whilst failing the very consumers the regulator claims to be protecting. It seems to me that they need guidance from practioners and a practioners panel would not only help speed up the process of regulation but help the regulator take a more pragmatic approach.

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  • Paul Woolley

    What ? The FCA/ FSA have failed us all, that cannot be right surely ??

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  • Whilst on the face of it this seems like something good is finally happening at the FCA but on closer inspection this is just someone wringing their hands admitting they haven't a clue how to address this.
    When you bombard a client with information their glazed look tells you they aren't taking it in and they just want it to stop. In fact they don't want to bother taking advice as the most simple transaction becomes too complicated. When I hear how we're all advisers now I have to laugh because the adviser that ploughs on regardless will fail. What happened to common sense?

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  • Simon Webster

    This is another positive step from the FCA, last week they relented on cap ad...

    There genuinely does seem to be some new thinking at FCA. Recognition that OVER disclosure harms consumer outcomes may be long overdue from regulators generally, but these guys have only been in charge for 5 minutes and it is a HUGE step forward. I for one am delighted.

    We need to give these guys a chance.

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  • Simon Webster | 10 October 2013 10:03 am

    Consumer Outcomes??? Yup, they've got you brainwashed as well.

    We encourage firms to consider these consumer outcomes when implementing
    their TCF initiatives and in assessing whether the changes they are implementing
    are having an impact.

    Well are they? - Are they positive outcomes, or are we living in a land of unintended consequences?

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  • Harry Katz

    Does that mean I can claim back all that unnecessary postage? I have been sending out parcels when I could have been sending letters.

    I also need to claim for several bottles of whiskey - needed to keep my tongue moist while licking all those stamps.

    Can I just deduct it from my next FCA bill?

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  • ASBO

    What about too much disclosure on the RMAR? That is another area that costs us for unnecessary work and time spent. Perhaps they could review that at the same time?

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  • Phil Castle

    @Malcolm Coury - There already is a small practitioners panel for the FCA and there was for the FSA. The problem is, that the FSA only took limited notice of it. It had well respected IFAs on it at the time including Gill Cardy and Paul Etheridge. Neither of which are still on the panel. I gave Gill quite a hard time while she was on the panel and we have since become good friends and I fully support her efforts at IFACentre.
    @Simon Webster - Tracey McDermott's comments do appear positive, BUT she is not new to the FCA, like Linda Woodall and Katharine Webster, all three were at the FSA previously. IF the FCA are truly accepting their errors. then what did Hector Sants get given a Knighthood for?

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  • DH

    The head line is correct on so many levels but it should read -: Costly FCA/FSA rules have FAILED the consumer and IFA's (full stop)

    Like you mentioned earlier in another article Tracey, but its you X FSA (new FCA) staff need to walk the walk instead of just talking the talk.
    Take some responsibility and admit you have got so many things wrong its hard to know where to start.
    Same old ignorant, bullies

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  • Has the FCA ever done ANYTHING that hasn't added unnecessary costs for firms and created complexity for consumers?

    Answers please on a postcard (one the size of a postage stamp should suffice).

    And, whilst I'm at it, if you or one of your underlings are reading this Ms. McDermott, if the FSA is finally beginning to realise that reducing costs and complexity for both advisers and consumers might be a good idea, start with a streamlined advice process ~ Proposition, Costs, Risks and Tax (that's how it's done in Europe).

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  • Call me cynical if you like, but all of these people who seem to be having these sudden flashes of enlightenment were the people who wasted all those years, destroyed all those careers, cost the industry needless billions and caused in my opinion, consumer disenfranchisement.

    To me this sounds like ' the king is dead, long live the king!

    If they truly wish to ensure that consumers get a good deal they should start a continuous and ongoing dialogue with the ones at the sharp end of all of this, the IFA.

    And be brave enough to admit that they got a lot more wrong than they did right.

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  • There has long been a tension between disclosing everything in a full prospectus and short form disclosure. Providers and the regulators (here and in Europe) have hesitated between the two often for fear of criticism and lack of confidence. Often though it is fair to say providers tended to hope of they could get away with stuff one way or the other. But funds are in fact pretty easy because they are usually simple constructs. We should not have started from where we were.The US system is a much better model than ours and should have been a place to start. However, insured funds are of course very tricky beasts - which is why they have had less focus and where I guess more horrid things happen. If you can't explain it simply then ban it is a useful idea.

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  • Richard Eats | 11 October 2013 10:33 am

    If you can't explain it simply then ban it is a useful idea.

    I personally can't explain Penicillin. Should that be banned as well?

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  • James Watkin | 11 October 2013 11:54 am

    Penicillin can be very dangerous if prescribed in the wrong amount for the wrong condition. So only a qualified doctor who properly understands the product should decide on its use. Structured products? Arch Cru?

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  • Richard Eats | 11 October 2013 9:09 pm (9:09 pm?) Half time perhaps? But then I guess not....!!!

    So only a qualified doctor who properly understands the product should decide on its use. Structured products? Arch Cru?

    The funds were high-risk products that typically invested in non-mainstream assets such as private equity, private finance and commodities. Advisers should only have recommended the funds to investors who fully understood - and were willing to accept - the risks.

    Seriously, you should look up the definition of 'qualified' and also look up the definition 're-writing history'.

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