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‘Blocking plans will make FSA a hostage to fortune’

A law firm has warned the FSA’s plans for product intervention risk making the regulator “a hostage to fortune”.

Speaking at a regulatory briefing last week, Barlow Lyde & Gilbert partner Chris Brennan suggested that under its new product intervention regime, there will be an expectation that the FSA will intervene to stop every unsuitable product.

Brennan said this is likely to be an unreasonable expectation and could lead to people making claims against the FSA for failing to stop a product that caused consumer detriment from reaching the market.

He said: “Effectively, the FSA will become a hostage to fortune because it is saying. ’we will intervene to stop bad products’. But it is setting itself up for a fall because if we have another situation like we did with payment protection insurance, people will say, ’well, you were supposed to stop this before’.”

Brennan also raised concerns about the FSA’s move to a more intrusive form of regulation .

He said: “We have gone from light- touch regulation, which was one end of the spectrum, to what we are seeing now. The pendulum has swung very rapidly back past any sort of balanced regulation to the extreme.

“I think it is very important that the industry does start to point out why this is going to be extremely difficult for the FSA to deliver and why it will not necessarily get it to where it wants to be.”

Brennan said reading between the lines of speeches by FSA chairman Lord Adair Turner, there is a suggestion that the industry should push back where it believes the regulator is being too heavy handed.

He said: “Even Turner seems to be saying to the industry, ’come on, you need to push back now because we are going to take this further than you want us to, and a lot further than we may want to go’.”

In his Mansion House speech last September, Turner said markets cannot be given free rein but cautioned against “swinging to the other extreme to ensure nobody ever exercises free choice”.

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Comments

There are 5 comments at the moment, we would love to hear your opinion too.

  1. Lindsay Lockett 18th April 2011 at 9:58 am

    So Mr Turner has put the FSA in a position where it doesn’t want to be, shame. I suggest we let them dig themselves out of that particular hole. As regards to them regulating products and advisers I look forward to the FSA’s full assistance in protecting all clients from all eventualities !!!

  2. Brennan said” this is likely to be an unreasonable expectation and could lead to people making claims against the FSA for failing to stop a product that caused consumer detriment from reaching the market”
    People can claim against the fsa if they want to.It will make no difference, the fsa enjoys statutory immunity.Unless they act in bad faith, which is difficult to prove,they cannot be held responsible for any wrongdoing or, as the TSC pointed out, any reckless stupidity.

  3. How can you expect the regulators to know what risks a product poses when they have always added risk to products without even noticing?

    NUTS!

  4. So they admit they themselves can’t do – with unlimited resources – what they expect an IFA to do every day of the week.

  5. The industry has already tried to push back when it’s believed that the FSA is being too heavy-handed. Trying to do so has got the industry nowhere because the FSA sets its own budget and its own agenda with no more than token reference to anybody else in the form of its so-called consultations. Has the FSA shifted its position a single inch on the proposals for its RDR? Of course it hasn’t. It cites a few bits of highly questionable research to support its position and then, despite various calls for moderation or a rethink, not least from the TSC, declares that its RDR will go ahead without change either to the content or timetable. Submissions in response to its consultations are carefully locked well away from public scrutiny, with no opportunity for all to see and to debate them.

    The FSA would indeed become a hostage to fortune if it tries to ban certain products and, for that reason, ultimately it’ll step back from the plate. Given that it is perhaps unreasonable to expect any regulator to analyse and arrive at a verdict on every single product on the market, maybe a better solution would be for the FSA to invite submissions from the industry on products that we, those who actually have to assess whether or not they’re safe or otherwise, consider toxic. If the overwhelming consensus was that Product X is dangerous and should be accorded close regulatory scrutiny, then the FSA should act accordingly.

    The trouble with that proposal though is that the FSA had in its possession as long ago as 2007 information that strongly suggested some of KeyData’s products were potentially dangerous and look what it did with that. Going back further, one is also reminded of the FSA’s failure to act on all the danger signs prior to the collapse of Equitable Life.

    Systemic Regulatory Dysfunction, unhappily, remains alive and well and as dangerous as ever. Meanwhile, Adair Turner continues to call at regular intervals for more resources, more staff, more power and, as always, more money.

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