FSA seeks to cap prices and ban products

Adair Turner, FSA chairman, will require tougher consumer-banking protections in the UK including bans on some retail financial products.

Lord Adair TurnerFSA chairman Adair Turner is to seek tougher consumer-banking protections in the UK including bans on some retail financial products and the introduction of price caps.

Lord Turner told the Financial Times that the regulator planned to impose fresh rules on the market, as part of a “radical rethink” of consumer protection.  “The way we do things now is not good,” Turner said, going on to say that the FSA “may have to put what is expected into rules” to make it easier for them to discern what is unacceptable. “This is a radical shift,” Turner said. “We’ve made part of the shift already…but now we are asking how radical we should be.”

The Conservative-led coalition plans to abolish the FSA in favour of a new system of financial supervision, which will include the creation of a separate consumer protection and markets authority (CPMA), set to take over retail regulation from the FSA in 2012.  The CPMA could be empowered to set maximum prices for particular services, require or ban particular features in complex products, or mandate risk warnings on some offerings.

Designed to stimulate debate about how the FSA and the CPMA should pursue its objective of consumer protection, the FSA discussion paper on product intervention published today proposes a “new and more intrusive approach to the regulation of retail financial services”.  The FSA acknowledges that consumer protection is higher for advised sales than non-advised sales, giving the example of investment advisers who are required to recommend suitable products that are in the best interest of the consumer.

But they also argue that financial advice costs money, which would force competent consumers to pay more than they need to access financial products.  The regulator also says that banning non-advised sales altogether could rule out online sales, which stimulates competition particularly among younger consumers.  The FSA said that “preventing non-advised sales would not…be an approach we would expect to use widely, but only for products where the risks are such that they outweigh the costs involved.”

Another option the FSA has outlined for intervening in the product cycle earlier would be to restrict some products to certain client groups, such as professional investors.  The FSA has also debated a requirement for advisers to hold extra qualifications, in addition to being qualified for their core advice activity.  For example, advisers who are qualified to advise on packaged products at the minimum level may be restricted to advising on more mainstream investments, with specialist advisers holding additional appropriate qualifications.

 

 

 

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