FSA chairman Lord Turner has stressed that regulation of financial services should not stifle customers’ freedom to choose products and services.
In his annual Mansion House speech in London last night, Turner (pictured) warned that the new Consumer Protection and Markets Authority must be mindful of consumer ignorance but at the same time must not operate in a “technocratic bubble”.
He said: “We cannot leave retail financial markets entirely to themselves and continue to accept the waves of mis-selling which have been such a feature of UK financial services for the last 20 years… in many retail financial markets, the imbalances of knowledge and power between consumers and providers are so profound, and the potential for perverse incentives so great, that even highly competitive markets and extensive information disclosure are insufficient to protect consumer interests.
“But nor should we swing to the other extreme and attempt to ensure that nobody ever exercises free choice to make decisions they subsequently regret.”
Turner said the RDR and the Mortgage Market Review was attempting to balance these “alternative desirable objectives” between choice and consumer protection.
He said: “We need to strike a balance, recognising that any regulation which protects some customers from taking on mortgages they cannot afford will inevitably affect others seeking to make sensible, affordable choices.”
Turner hinted at the possibility of restricting mortgage lending during rising markets in an attempt to stop any future credit or housing bubbles.
Turner also admitted that he thought the capital adequacy requirements imposed on European banks as part of Basel III did not do enough in an ideal world, but do enough to control the banking sector and protect European economies in this environment.
He said: “If we were philosopher kings designing a banking system entirely anew for a greenfield economy, should we have set still higher capital ratios than in the Basel III regime? Yes I believe we should. But starting from where we actually are, the Basel III reforms will significantly improve the resilience of our banking systems without harming economic recovery.”
In last year’s Mansion House speech, Lord Turner was heckled by MEP for Yorkshire and North Lincolnshire and IFA advocate Godfrey Bloom, something he commented on in this year’s speech.
He said: “We can build a more stable financial system better able to serve the needs of the real economy and of consumers, but it requires choices more complex than those which last year’s heckler was capable of grasping.”