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FSA floats industry-set minimum product standards plan

The FSA has floated the idea of minimum product standards set by the industry to ensure retail financial services products are fit for purpose.

The regulator has today published its feedback statement to the product intervention discussion paper it put out in January.

The product intervention paper marked a shift in the way the FSA and later the Financial Conduct Authority will supervise firms, from focusing on point-of-sale to getting involved earlier in the product cycle such as product designs.

Responding to the paper, some consumer bodies called for the introduction of minimum product standards devised by a cross-industry committee.

The idea of industry agreed definitions has already been rolled out through initiatives such as the Association of British Insurers’ work on the total and permanent disability clause within critical-illness cover.

The FSA says: “We consider that there may be some merit to adopting industry-set minimum standards.

“However, for such a regime to be effective, it would require the enthusiastic participation of all stakeholders, including firms, consumer representatives and industry bodies, and the industry would collectively need to ensure that the regime was managed by an effective independent accreditation and supervision scheme.”

The FSA is also considering developing a single set of rules and guidance to oversee products and product design, and turning guidance on fair treatment of customers into rules.

Many respondents were opposed to the idea put forward by the FSA in January that non-advised sales should be banned for complex products and where there is a high risk of consumer detriment.

But the FSA says: “We believe this option should be available to us where we identity particularly vulnerable customers or particular circumstances in which it is the most likely route to improve customer outcomes.”

The regulator also proposed additional competence requirements for non-mainstream products such as pension transfers and long-term care.

In its feedback statement the FSA says it can see the need for extra qualifications for transactions that cannot be reversed, and will address pensions transfers specifically when it reviews pension transfer specialist exam standards later this year.

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Comments

There are 7 comments at the moment, we would love to hear your opinion too.

  1. This is a good thing, all products should be tested for purpose.

    Sharp practice in product design should not be tolerated by anyone, IFA’s should back this.

    Now, if only FSA could find the courage to ban non-advised sales, ban providers from ‘advising’ on own products and create a single distribution chanel where IFA whole of market is the norm.

  2. The problem with this is that some investments whilst they may be considered a wild card for some clients, are not necessarily so for others. You do have more sophisticated clients who have a good understanding of the risks associated with some products and want that degree of risk. Yes they may not be mainstream but nevertheless they serve a purpose.

    The whole of capitalism will fall down if risk is removed however transparent or opaque it may be.

  3. Harry Moore – what right do the FSA or anyone else have to ban non-advised sales? If someone wants to look after their own investments and is prepared to take that risk – who has the right to stop them. What I do with my own money should be entirely up to me.

  4. I can feel another quango coming on !

  5. Kevin Murphy – creating a single distribution channel, forcing providers to ‘apply’ for entry (after scrutiny) to that market, applying a layer of common sense or element of advice, removing the link between product provider and adviser.

    I see these as ingredients for a more competitive market, lower product costs, fewer complaints. It is a tough one to get your head round if you are a product provider – intense scrutiny of products is a good start, I hope the rest will follow.

  6. Julian Stevens 14th June 2011 at 5:19 pm

    If these minimum product standards are genuinely set by the industry in such a way that enables everybody to see and debate all input from the various bodies and parties involved, this might just be a fairly healthy development for an industry riven by so many fragmented opinions and a lack of consensus on so many issues.

    Then again, given the FSA’s extremely uninspiring track record so far on consultations, if the design of new products ever actually happens in the way suggested by this article, it will also constitute a radical departure from established regulatory policy. Will the FSA really be able to stand back without imposing its iron and unchallengeable will on the proceedings?

  7. “It ain;t what you buy it’s the way that you buy it” is often true in FS. I feel an MM column coming on!
    And clients who buy without advice should be able to make fools out od themselves, I guess.

    Mind you, at LifeSearch we find over 70% who do buy protection products this way then change something material about their decision when we later review it with them, Non advisers should perhaps tell their customers that.

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