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FSA sparks product regulation concerns

The financial services industry has warned the FSA of the dangers of widespread pension and investment product regulation.

At Gleneagles Savings and Pensions Industry Leaders’ Summit on Saturday, FSA managing director of retail markets Jon Pain floated the idea of product regulation as a way of improving consumer protection.

He said: “We will approach product regulation with an open mind. We would see it as encompassing a whole spectrum of possible measures. It can be about preapproving and banning products or setting parameters or constraints around certain design features.”

He added that he recognised product regulation “may be too blunt a tool” to achieve all the regu- lator’s goals and posed considerable challenges.

Advisers and providers consider product regulation would risk creating extra costs and stifling innovation.

Tenet group distribution and development director Keith Richards says: “We could end up with greater regulation and manufacturing costs on the industry, when what we need to do is ensure consumers take responsibility for their decisions.

“Most complaints relate to product performance, not complexity. Anyone who thinks that product regulation will help consumers to better understand complex products is naive.”

PFS past president Rob Reid says: “Instead of product regulation, the FSA should ensure all products are transparent so advisers and clients can clearly identify whether they suit particular needs.”

Fidelity International head of UK retail sales Peter Hicks says: “Who is liable if you let a product through that turns out not to be a good one? The stifling of innovation would possibly go too far. I am not convinced it is part of the regulator’s job and responsibility to preapprove products. I think part of regulation is policing and enforcement and they have to rely on the providers to produce good products that produce good outcomes and do what they say on the tin.”

Zurich UK Life intermediary sales director Richard Howells says anything that reduces IFA liabilities is a positive move but product regulation is at odds with the RDR’s focus on holistic advice and the emergence of platforms and wraps.

However, Beachcroft Regulatory Consulting managing director Richard Hobbs says a radical product regulation regime, where a product is deemed to be “axiomatically good in the hands of consumers”, would significantly reduce complaints.

He says: “There would still be a number of administration complaints but suitability complaints would disappear.”

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There are 3 comments at the moment, we would love to hear your opinion too.

  1. FSA sparks product regulation concerns
    The danger here, as I see it, is that FSA interference of this sort will bowdlerize everything into a relatively small range of supposedly one-size-fits-all products. If that is allowed to happen, it will most certainly constitute the stifling of product innovation which won’t help anybody. As I have said elsewhere, an excellent product may be as unsuitable for one type of investor as it is suitable for another. But that doesn’t detract from its intrinsic quality. Dumbing down all products to one lowest common denominator will surely be detrimental to consumer choice. I agree with Rob Reid and Peter Hicks. The more insidious prospect here, though, is that product regulation could suppress the scope for creative holistic financial planning, which rather suggests that we may all be reduced merely to flogging products in the way the banks do. And anyway, if we consider the FSA’s past record on product analysis, such as Split Cap Investment Trusts and stakeholder pensions, it’s hardly very encouraging, is it? The key, as always, is advice tailored to the needs and objectives of each individual client, which is what IFA’s do and which the banks patently don’t. So what is the FSA doing to make the banks provide better advice?

  2. Regulating products
    If the FSA were to regulate products, through some sort of ‘licensing’ arrangement, then we would end up with two ‘Outcomes’ (the regulator likes this word, usually prefixed with the word Consumer).
    These ‘outcomes’ would be:
    1) Products of such simplicity that they can only be used for the most narrowly defined of purposes, such that clients would require a myriad of these little products to fulfill the most basic needs.
    and/or
    2) Products that are so over engineered, to cover every possible customer situation, that they end up properly satisfying no one. The customer ends up having to buy (and pay for) a product with bells and whistles for which they have no conceivable need or requirement, purely because the Aunties at the FSA want to cover all bases.

    On the design and production side all providers would need to negotiate new products with the FSA to achieve some sort of ‘Kite Mark’.
    This opens up a minefield. The FSA has taken no responsibility, actual or moral, for any of it’s actions and shows no inclination to do so in future. We would therefore end up with the FSA effectively directing the design of products without any responsibility, even if that design should subsequently prove faulty.
    So what value having an ‘Approved’ or ‘Regulated’ product?
    When the provider receives a complaint he will say, with total justification, that he was forced to design the product in this or that way by the Regulator so it’s not his problem. Please address your complaint to the FSA.

    This is just another idea floated by the FSA’s empire builders. I am tempted to suggest they should just try to do their basic jobs properly first, but that misses the point that is currently uppermost in the minds of the FSA hierarchy which is ‘JOB RETENTION’. The more ideas flung out of Canary Wharfe the greater the possibility that one or two might be picked up as having some merit. The bigger the smokescreen the better the possibility that putting them all out of work can be avoided. I think ‘Product Regulation’ is just more smoke.

  3. FSA – product regulation
    It’s strange isn’t it – that so many ordinary IFAs can so quickly see that the idea is stupid and unworkable and yet the FSA (with all its highly paid brilliant minds) can come up with such dumb-headed nonsense.

    Let’s all be clear here. The FSA is unfit for purpose. It has failed miserably at what it was set up to do and, instead, continues to define and expand its own role to justify its existence.

    The sooner the FSA is disbanded and their workforce has to go and find real jobs (most of them will be a long time on the dole along with 300 labour MPs) the better for the industry, AND the consumer.

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