FSA considering industry-wide product regulation
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The FSA is looking closely at introducing widespread product regulation as a means of increasing consumer trust in financial services.
Speaking at the Gleneagles Savings and Pensions Industry Leaders’ Summit on Saturday, FSA managing director of retail markets Jon Pain said product regulation is one of the best ways to protect consumers.
He said: “We need to think about how best to protect consumers. One such area is through product regulation.
“We will approach product regulation with an open mind in future. We would see the term product regulation as encompassing a whole spectrum of possible measures. It can be about pre-approving and banning products or alternatively setting parameters or constraints around certain design features.”
Pain said regulatory tools such as disclosure of product details and charges have a limited ability to protect consumers.
He said: “Product regulation could potentially not only improve consumer outcomes but also change competition dynamics within the market place. Arguably, product regulation could lead to more standardised products which could incentivise firms to offer better value rather than compete on extraneous bells and whistles. This could also bring economies of scale.
“However we recognise that product regulation may be too blunt a tool to achieve all the outcomes that we desire and that it poses considerable challenges. We will have to be sensitive to the economic effects of regulating product design. We would need to ensure that intervention does not introduce more problems than it solves.”
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Readers' comments (2)
Julian Stevens | 22 Sep 2009 3:32 pm
FSA considering industry-wide product regulation
If the FSA does decide to wade into this particular swamp, let us all hope they make a better job of it than they did with Split Cap Investment Trusts and stakeholder pensions, to name but two. The big issue though is product suitability at least as much as the intrinsic quality of a product itself. A brilliant product might be as unsuitable for one type of investor as it is suitable for another and that type of judgement call is virtually impossible to make by regulation ~ still less by a regulator like the FSA which couldn't tell a pecan pie from a cow pat.
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Jim Payne | 22 Sep 2009 4:57 pm
Product regulation
I am not a fan of regulation per se but my instinctive reaction to Product Regulation is that there is merit in this, if it means making products simpler and more transparent.
By way of example I have over the years explained to my clients that a Mortgage 'in popular parlance', is simply a Loan. Normally used to finance bricks and mortar (but, to show I haven't had too narrow a life, I've done a number of Marine Mortgages in my time) the 'Mortgage' part is the 'granting of rights over the purchased property BY the Borrower TO the Lender', which is accomplished by way of a Mortgage Deed. This completes the contract because each party gives something to the other. The Lender grants the Loan, gives money, and the Borrower gives Rights, a lien, over the Property by way of a Mortgage Deed.
Once we think of 'A Mortgage' as merely a LOAN, with the purchased property put up as security, we can more easily ask why do we need 3/5/7000 different 'Mortgage Products'?
The answer of course is that we don't. The lenders want to use all sorts of ruses and smoke screens to make it difficult for the consumer to compare like-for-like loans, spinning that they are just trying to satisfy market demands and being competitive. It also of course is an attempt to create 'Unique Selling Propositions'. (USP's)
Making these sorts of 'product' simpler, clearer and more transparent would be a good way forward.
However the difficulty I have is that, with the Regulator not having exactly covered itself with glory in the past few years, I lack confidence in the FSA's ability and competence to even come up with sensible aims for 'Product Regulation'. Delivering on it is another matter entirely.
Essentially for product providers read the large financial institutions which the FSA has singularly failed to take properly to task over a wide range of well documented issues. What hope that they have the knowledge, ability or even the inclination to do a good job this time around?
Perhaps if their jobs were on the line, there was a very independent oversight body and the FSA took proper responsibility for it's actions there may be a chance.
At the consumer end the FSA seems to have the arrogant attitude that 'The FSA Knows Best'. It should do because it is being paid to do just that.
While 'Past Performance Is Not A Guarantee Of Future Success' it is an indication. So , on past performance, would you buy 'Regulation' from this organisation (term used loosely)?
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