The FSA is dead, long live the FSA. Sorry, that should be the FCA.
On the face of it, it’s not hard to see why the two can be so easily confused.
I must admit when I first heard that the Financial Conduct Authority was taking over from the Financial Services Authority I was a entirely underwhelmed, particularly as this new watchdog seems to be largely staffed and run by incumbents from the previous regulatory body.
True, this new watchdog appears to have a slightly fiercer sounding bark. One of its remits is to “stamp out practices that can lead to customers detriment”.
But haven’t we heard such fine sounding sentiments before? Not just from the FSA, but the PIA and Lautro before it.
Remember Treating Customers Fairly? This “guiding principle” was in force while banks mis-sold payment protection insurance by the bucket-load, complex structured products were flogged to grandmothers and critical illness insurers could turn down cancer claims because policyholders had failed to disclose in-growing toe-nails.
But despite my natural cynical instincts, I have to admit that in these first few weeks the FCA is doing a very good impression of taking a markedly different approach to its predecessor.
In his first speech as chief executive, Martin Wheatley effectively blew away one of the fundamental principles that has underpinned financial regulation for years: caveat emptor, or buyer beware.
Banks have been warned that that can no longer rely on this defence when selling complicated financial products to customers. The onus will now be on them to sell suitable products, and prove they have explained the risks involved, rather than on the customer to have grasped what they are buying before signing on the dotted line.
And this does not seem to be the only line being redrawn.
A recent change to insurance law also shifts the responsibility for disclosing medical information from the consumer to the insurer.
Previously, it was the responsibility of the consumer to volunteer all relevant facts that could impact a future claim. Now, if the insurer has not asked a specific question to elicit this information, then it can not turn down a claim for non-disclosure at a later date.
This has been part of a voluntary code for a couple of years now, but it is appearing on the statute books just as the regulator appears to be taking a similar tack.
This new approach will affect all financial providers, and advisers. But it is banks that are in the cross hairs of the regulator’s aim, as they sell such a wide range of products to the mass market.
As Wheatley said it is hard to defend the concept of caveat emptor when unsophisticated customers are buying seriously complicated financial products – it is just not the same as buying bananas in the supermarket.
The only problem remains deciding what exactly constitutes a “complex” financial product. Will a paid-for current account, with added insurance, a range of authorised and unauthorised overdraft charges and linked credit card offers meet this criteria?
What a protection product that offers partial payments for some types of cancer, full payout for others, and no payment at all for certain conditions? Or how about a pension or annuity?
Without more details this overarching principle may have as much lasting impact as Treating Customers Fairly. But there is the danger that with the detail, what was once a relatively simple concept gets bogged down in strategic and operational objectives, scoping papers, supplementary consultation exercises and sub-clause 3.1 which is worded almost entirely in regulatory jargon.
Still, if all else fails, there are always simplified products to fall back on, the bananas of the financial world.
At least the banks – and no doubt the regulator too – will not have to take responsibility if customers slip up on the inevitable skins.
Emma Simon is deputy personal finance editor at the Telegraph Media Group