Treasury financial secretary Mark Hoban says the more interventionist approach to regulation set to come into force next year is the price of expecting people to take more responsibility for their own financial decisions in the wake of misselling scandals.
From early next year, the FSA will be replaced with the Financial Conduct Authority and the Prudential Regulation Authority. The FCA’s consumer protection objective means the regulator must have regard to the varying sophistication of consumers but that it should also take into account the “general principle that consumers should take responsibility for their decisions”.
The FCA is set get powers to intervene in the development of products when it thinks they pose a risk of consumer detriment and it will be able to ban products for up to a year or place requirements on their features or how they are marketed.
Speaking at a Reform event on the future of regulation in London this week, Hoban said that more responsibility has been placed on individuals to look after their own finances. He cited the “demise” of defined benefit pensions in favour of defined contribution schemes.
He said: “Society’s risk appetite for misselling has diminished. There have been too many examples of misselling to the cost of consumers and business. The more interventionist approach from the FCA will not only protect consumers, but in the long-term it will strengthen the reputation of the sector and give consumers more confidence to buy because they know the right processes are in place to make sure the market is well regulated.
“That does not mean to say it will be a zero failure regime. There will still be problems. But, there will be a better balance between the risk we expect an individual to take and how we protect them when they make decisions about their financial futures.”
Last week, Barclays, HSBC, Lloyds Banking Group and Royal Bank of Scotland agreed a settlement with the FSA to pay “appropriate redress” to small and medium sized businesses that were missold interest rate swaps. The FSA said it had found “serious failing” in the way they were sold. The agreement comes after banks put billions of pounds aside to compensate consumers who were missold payment protection insurance.