Head of the Financial Conduct Authority Martin Wheatley says the new regulator will work to protect consumers who cannot be relied upon to make rational choices by banning the sale of potentially harmful products.
In an interview with the Financial Times, Wheatley (pictured) says the 2008 financial crisis has led to the regulator changing its assumptions about how best to protect investors.
He says: “You have to assume that you do not have rational consumers. Faced with complex decisions or too much information, they default…They hide behind credit rating agencies or behind the promises that are given to them by the salesperson.”
Under the new regulatory structure the FCA, set to launch next year, will ensure suitable products are sold to retail investors. The new regulator will have the power to ban products that could cause consumer detriment, or limit their sale to certain types of consumers.
Wheatley believes use of product ban powers will be rare, but also says the regulator’s more interventionist approach will mean “stepping into the footprints of the investors”.
Wheatley says : “We will work more closely with firms to make sure the products they design go through a real testing process and serve a real purpose. When we start to hear of problems with a product, we will go in much earlier than in the past.”
He says the FCA will be pursuing a more intensive style of supervision than was previously the case under the FSA before the financial crisis, and says the new regulator will be “looking at things from a consumer perspective, rather than an industry perspective.”
Wheatley told the newspaper he is hopeful that costs of the FCA will be in line of those of the FSA, but warned if the FCA is given new responsibilities such as promoting competition and regulating consumer credit more money would be needed.
He adds: “Where it is a step change, we will need more. There is not much more we can stop doing.”