You can understand why the FSA, battered and bruised by events of the last few years, is now looking to introduce a greater degree of productregulation into the market.
FSA chief executive Hector Sants’ speech last week in Oxford was an open admission of the organisation’s failure to properly regulate the retail market.
The FSA now intends to intervene at an earlier stage of product development in an attempt to prevent market failures and offer better consumer protection.
Sants believes the FSA’s focus has been too late in the product lifecycle and says that in future the regulator will look to intervene earlier in
the product chain.
A greater emphasis on product regulation by the regulator raises a number of important concerns but it is about time the FSA took a greater responsibility for its failings in this area.
For too long, advisers have taken on too much of the burden for products which should never have seen the light of day.
If product regulation leads to fewer dodgy products being sold and a reduction in the Financial Services Compensation Scheme bill, then the potential damage to product innovation and other costs may well be a price worth paying.
The problem, of course, is ensuring the right products are stopped from coming to market. Sants acknowledged that this change of approach is going to require better skilled staff, which will have to be paid for by the industry. Would these staff have stopped split caps, Arch cru, Keydata or any of the other industry debacles?
Which useful financial products may not have made it through the regulator’s cordon?
One potential benefit is the transfer of some risk from adviser to the regulator that would accompany the move to product regulation. But how
far would this happen, given that the regulator is funded by the industry and so any failures in its regulation of products would be paid for by the
As always, there is the natural concern that an increase in regulation and costs will not deliver its intended results.
Product regulation has the potential to introduce real benefits for both the industry and consumers but we must be as sure as possible that these benefits can be achieved before we introduce layers of new regulation.