The Information Commissioner has ruled that the FSA must name and shame advisers who performed badly in a mystery-shopping exercise in a move that experts and the regulator warn could unfairly prejudice mystery-shopped firms.
The FSA is appealing against the decision, which jeopardises the regulator’s future use of mystery shopping that it depends on to assess various areas of the market, including its current high-profile treating customers fairly initiative.
The regulator says disclosure could endanger the commercial interests of advisers who are mystery-shopped, on the basis of results that may not be truly reflective of their market practices.
It will publish a discussion paper on the risks and benefits of greater transparency early next year.
The decision is based on a complaint to the IC after the FSA rejected a freedom of information request to disclose information relating to an equity-release mystery-shopping exercise.
The IC ruled that the FSA was right not to disclose the results of all firms mystery-shopped but that it must reveal the identities and findings of seven firms which the FSA investigated on subsequent investment advice as a result of the mystery shopping.
Arguing against the decision, the FSA says disclosure may potentially increase unjustified complaints against these firms and that they would not be receiving equal treatment compared with firms that were not mystery-shopped.
Compliance consultant Adam Samuel says: “The problem is knowing how reliable the mystery-shopping outcomes are. If they are not very good indicators of non-compliance, then the commissioner has probably exercised his discretion wrongly.”
Beachcroft Regulatory Consulting managing director Richard Hobbs says: “We might want to chuckle at the FSA’s discomfort but this decision does not help anyone much. Hobbling parts of the regulatory toolkit will only force the FSA to overuse other parts and make it harder to root out bad practice.”
It is the third time this year that the IC has ruled the FSA was wrong to refuse to disclose parts of an FOI request and it ruled that the FSA has breached the FOI Act on three further occasions this year.