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FSA launches caveat emptor review

The FSA has launched a discussion paper into how much responsibility consumers must take when making financial decisions.

The FSA says while it doesn’t regulate consumers, it is required by law to consider the general principle that consumers should take responsibility for their decisions when setting its consumer protection agenda.

FSA director of retail policy & conduct risk Dan Waters says: “Responsible and well managed firms that treat their customers fairly are crucial. However, we also believe that markets will work more effectively if consumers are more involved, more capable and empowered. While we do not regulate consumers, we believe that we can work with firms, industry bodies and other stakeholders to encourage and enable consumers to consider their own interests more effectively in their decision making.

“We acknowledge that this is a debate that elicits strong feelings on both sides and we are keen to try to find common ground in order to contribute to better understanding and better outcomes for consumers in financial services markets.”

But the Financial Services Consumer Panel has hit out at the FSA for focusing on consumer responsibility “at a time when large sections of the industry are not giving consumers a fair deal”.

FSCP acting chairman Adam Phillips says: “Clearly, the industry has been putting pressure on the FSA to increase consumer obligations. While we are not arguing with the need for consumers to answer questions honestly and read key information, the FSA document provides an opportunity for the industry to attack consumers’ rights, when it is the industry itself which needs to get its house in order and take responsibility for its actions.

“Over the past few months we’ve seen consumer confidence fall to unprecedented low levels. We have told the FSA that this is not the time to be discussing consumer responsibility and we will continue to pursue this line vigorously with the FSA over the coming months.”

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The FSA’s planned changes to the capital adequacy requirements show an inherent bias in favour of old-style firms and against new-style and financial planning models. I am sure this bias is unintended, as it is contrary to all other recent work by the regulator.

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Apparently, the FSA is unhappy at industry reaction to the RDR feedback statement. They appear to be suggesting that by not pleasing any particular sector, they have created an acceptable balance. Evidently, they choose not to consider the other possibility – that such antipathy denotes an awareness that the proposed actions cannot achieve the desired outcomes.

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