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Panels clash on caveat emptor

Plans to require consumers to take more responsibility for their investment decisions and instil caveat emptor into FSA regulation have been derailed by clashes between consumer and industry bodies.

In its 2004/05 report, the financial services practitioner panel said it was in negotiations with the financial services consumer panel and the FSA to develop a working definition of what this principle might mean in practice and how it should affect firms’ regulatory obligations, particularly treating customers fairly.

But industry sources say negotiations have floundered since a working definition put forward by the practitioner panel was thrown out by the consumer panel last summer.

The principle of caveat emptor is contained in the Financial Services and Markets Act but many in the industry believe it has been overlooked in practice, with advisers and providers being found culpable for consumers’ mistakes.

FSA chairman Sir Callum McCarthy is scheduled to address the issue in a speech next week but an FSA spokesman says that there are no specific plans in its 2006 business plan to embed caveat emptor further in its rules.

Financial services consumer panel spokeswoman Rebecca Taylor says: “The ball is in the FSA’s court. We are positive towards helping them develop a definition.”

Aifa director general Chris Cummings: “Caveat emptor is in the FSMA but it has been virtually ignored. A working defin- ition should be possible and we would be happy to work with the FSA on this.”

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