FSA chairman Lord Turner has warned the low interest rate environment is making consumers more vulnerable to the lure of complex structured products.
Speaking at Mansion House last night Turner (pictured) said the last 20 years have been “punctuated with too many waves of misselling” which has pushed total compensation to consumers to over £15bn and the number of complaints to the Financial Ombudsman Service from 30,000 in 2000/01 to 200,000 last year.
He said at the heart of these problems was the complexity of many financial products and a difficulty for consumers to understand the true price of investment products.
Turner said: “So the potential to sell products which carry more cost or risk than customers appreciate is ever-present; and particularly today when low interest rates mean low returns for truly safe investments, making consumers highly vulnerable to the promise of complex structured products which appear to offer the dream combination of higher return without higher risk.”
Turner argued in the move to the new regulatory structure the industry will need to consider the trade-offs that the Financial Conduct Authority will have to make, such as those between more intensive supervision and higher regulatory costs.
He also said there was a trade-off to be made in terms of consumer redress.
He said: “The natural assumption may be that wherever there has been a breach of regulatory rules and also customer detriment, that 100 per cent redress should be available.
“But general principles of law mean that if the breach of rules did not without question cause the whole loss, then 100 per cent redress is not available.”
Turner also said he was wary about the direction of European policymaking on banks’ capital adequacy. He echoed Government concerns that on a national level countries will not have the flexibility they need to tailor rules to suit their market.
He said: “One thing which is crystal clear, but an area of significant concern, is that forthcoming European legislation must allow adequate flexibility for the national variation of macro-prudential tools.
“European capital adequacy regulation should enforce minimum standards across the European Union, but it should leave national authorities free to exceed and vary them above the minimum.
“The idea that securing the single market requires the harmonisation of maximum as well as minimum standards is simply wrong and potentially harmful.”