There's no question that the financial services industry has consistently failed its customers. Greedy salesmen must take some of the blame, but is the FSA finally taking some responsibility too? .
I’ve argued for years that the Financial Services Authority should regulate the product and its presentation, not the sales process. Through those years, the scandals have carried on mounting up, and each time the regulator has come along, sometimes years after the horse has bolted, to shut the stable door.
19 April 2002, a letter from me to the Financial Services Authority, responding to a Consultative Paper about scrapping the then ‘polarisation’ rules:
“Regulation has failed to ensure that product risks are understood and failed to secure honesty in product presentation…the FSA should place much more emphasis on the regulation of the product and much less on the distribution.”
April 2008, my article in Money Management:
“However, if the contortions associated with segmenting a market by types of advice lead nowhere, which seems at least possible, the FSA may have to turn back to the product complexity issue and address it at source.”
14 February 2011, a letter (unpublished) to The Economist:
“Most of the so-called mis-selling scandals of the past few years could have been avoided if the FSA had regulated the product itself, and made more extensive use of the permitted activities regime to make sure that sales people really did understand what they were selling.
The standard approach to consumer protection is to make sure the product is safe when it leaves the factory or shop. The FSA approach is the equivalent of passing responsibility for the Motor Vehicles Construction and Use Regulations to thousands of back street second hand car dealers.”
January 2011, Adair, Lord Turner, FSA Chairman, in the introduction to a Discussion Paper entitles ‘Product Intervention’
“In the past the FSA’s regulatory approach was based on the assumption that effective consumer protection would be achieved provided sales processes were fair and product feature disclosure was transparent. But this approach has not been effective in preventing waves of severe customer detriment.”
A page or so on in the same document:
“So, while we have made clear that firms have responsibilities to design products appropriate to the needs of the intended target market, we have in practice focused on the point-of-sale – including financial promotions, product disclosure and selling practices – to try to prevent mis-sales. This approach has not always achieved the right customer outcomes: in some high-profile cases, consumers have suffered significant detriment. We believe a new regulatory approach is needed to avoid these large-scale episodes of consumer detriment.”
In my view, these two statements are Civil Service speak for WE HAVE FAILED. I suppose we should be pleased that the FSA has now admitted that for all of ten years it has been barking up the wrong tree.
You don’t need to read the Discussion Paper to guess that the solution is of course to climb up another couple of branches and bark a bit louder.
The answer is for the regulator to pre-approve the product and its presentation. But the FSA is having none of it. Oh dear, they say, we’d need more staff and the costs would have to be passed on to consumers. And we’d probably be far too cautious, and so restrict consumer choice. Worse still, products would be delayed.
Baloney. They could divert staff from the activities that have failed. They would be able to approve risky stuff, but control it through making sure that it could only be sold by qualified people, with risk warnings plastered all over it. And it takes ages to get a product to market anyway, so there would be no additional delay.
The reality is that the FSA does not want to be accountable. It is much happier wringing its hands and saying that it has done everything in its power to prevent abuses. In the meantime, it is costing all of us an absolute fortune.
Wouldn’t it be nice to know that: a product and associated risk warnings had passed regulatory scrutiny; the person flogging it to us understood it; and that the charges would be disclosed to us in regular intervals, in cash.
It ain’t going to happen.
Read this article at http://www.candidmoney.com/articles/article199.aspx
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