FSA to get tough on risky products
Share
FSA chief executive Hector Sants is to announce plans for the regulator to “get tough” on the sale of risky financial products to better protect the consumer.
In a speech to be delivered to the Säid Business School in Oxford this evening, Sants will set out a new strategy that will stop risky mortgage, protection, investment and pension products being sold. He will say the FSA needs to take action rather than offer out compensation after the damage has been done.
He told the BBC this morning that he believes the FSA should vet certain risky products before they are put on sale. He said: “[We need to] analyse more comprehensively what individual firms are up to, and get more involved in the design stage [of financial product development]”.
At a recent Treasury select committee hearing, FSA chairman Lord Turner said the regulator was still grappling with the extent to which product regulation should be introduced. He said the FSA was exploring the issue of product regulation but outlined some concerns.
Turner told MPs that product regulation risked increasing moral hazard by making consumers feel overly confident about buying regulated products. He also suggested it would be difficult to regulate retail financial products which vary in their design.
He told MPs: “Should we ever be willing to say, we know in advance that split-capital trusts are an undesirable product sold to anybody? Some people say, well, in the pharmaceutical area, we have product regulation but it is not as simple as that. Pharmaceutical products tend to come in entirely discrete products that take years in development. The nature of products in retail financial banking are minor variants to a product that previously existed.”
Any move towards product regulation may require new legislation but, according to the BBC, Sants wants to push through the new rules before he departs in the summer. The Conservative Party has previously expressed some concerns that product regulation could damage innovation and competition.
Speaking at Tenet’s annual conference in London in December, Conservative Shadow financial secretary to the Treasury Mark Hoban said: “If you have products kitemarked, it gives consumers more confidence. But equally what we do not want to see is the process for innovation and competition in the financial services market unnecessarily harmed by product regulation because it could act as a brake on innovation. We need to think quite carefully about how it would work.”
If you enjoyed this article, sign up here to receive daily email updates from Money Marketing and Follow @_moneymarketing
View results 10 per page | 20 per page | 50 per page
Readers' comments (32)
Dick Whitchell | 12 Mar 2010 9:52 am
The man is clearly a buffoon, we should not stop the sale of risky products, if they match my clients attitude to risk then they are suitable. The industry needs to be aware of these products any maybe providers could be compelled to say that these are higher risk products. Who wants to just sell vanilla ice cream when for the right people there is rum and raison out there. The regulator has to stop acting like a dictatorship and actually get back to consulting the industry on things like this. If this is the level of leadership hector is bringing maybe he should go now and save tarnishing the FSAs reputation further.
Unsuitable or offensive? Report this comment
Wayne Clark | 12 Mar 2010 9:59 am
I think we all know of advisers that try and sell complicated risky products to less sophisticated clients to try and make themselves look important. I think this is aimed at stopping selling sophisticated products to unsophisticated consumers, which I agree with.
Unsuitable or offensive? Report this comment
Anonymous | 12 Mar 2010 10:05 am
Dick - you are absolutely right. It would seem that the FSA's prima facie objective is to regulate out of existence any risk whatsoever thus proving that it has provided absolutely for the protection of consumers by ensuring that they are exposed to no risk, full stop.
Of course the unintended consequence of this puritanical drive is to destroy any future value of clients' investments, pensions and savings given that zero risk equals zero return.
By the time the outcry at disastrous returns comes it will of course be too late, as most advisers will have left the industry as there is no business incentive to remain and, hey presto, the FSA will have achieved its true objective of driving all clients into the arms of their beloved banks.
Unsuitable or offensive? Report this comment
John Blackmore | 12 Mar 2010 10:06 am
As an advocate of Product Regulation - in place of Obsessive Advice Regulation I think that there is a perfect compromise.
Those who buy Regulated Products get Consumer Protection. Those who go off piste simply have recourse to the normal law courts.
The bread and butter/plain vanillia Regulated Products would take care of perhaps 95% of the market leaving product innovators and the high network and fee based advisers to get on with the complex end of the market.
Regulated Products by definition would not be the best but they would be reasonable and avoid major disasters. Caveat emptor and the courts could easily deal with the small number who genuinely need complex expensive Independent advice and I could get back to closing the savings gap on a much cheaper commission basis.
Unsuitable or offensive? Report this comment
hugh jeego | 12 Mar 2010 10:06 am
What`s this? Something aimed at product providers for a change? The horse has bolted Hector. Suggest you do the same. Talk about being wise after the event! Priceless.
Unsuitable or offensive? Report this comment
Paul Nash | 12 Mar 2010 10:07 am
Why did the FSA allow companies to name high risks products 'Secure Income Plans'?
Secure is not a word which I would associate with something that is high risk.
Unsuitable or offensive? Report this comment
Dick Whitchell | 12 Mar 2010 10:12 am
Thanks Wayne and i do agree with your point but then is it not a selling issue, should the adviser community not take more pride and care on what they sell, there has been a lot of outcry by the industry on the levys being charged for miss-selling but no-one is standing up and saying we need to take responsibility, its at this point the regulator comes steaming in with its kicking boots. there should be a range of product around the risk spectrum and if the adviser is not sure about whether they should sell them then it should be an indicator that its a NO. But i do agree something has to be done.
Unsuitable or offensive? Report this comment
David | 12 Mar 2010 10:16 am
Its all well and good the FSA wanting to pre-vet riskier products before they come to market. However, i feel they should get a grip on the simple products that are in the market now as they certainly dont seem to understand some of those, SIPPs in particular.
Unsuitable or offensive? Report this comment
Derek Vivian | 12 Mar 2010 10:18 am
I find I am in sympathy with this 'new' idea to regulate financial services products! I am not sure what the FSA means by stopping pension 'mis - selling' as this was not the product that was at fault, but the inaappropriate advice or sale of products - a different way of looking at it? So long as there are IFAs who give honest and appropriate advice to clients products will be OK because these IFAs will research them. I am not so sure the latest Government's scam of 'free advice to all' will achieve anything but potential mis - buying!
Unsuitable or offensive? Report this comment
John Waddell | 12 Mar 2010 10:24 am
There is an obvious problem for the FSA in risk-rating products. They would have to take some responsibility and would be unable to blame the advisers every time product providers let us down.
Unsuitable or offensive? Report this comment