News - Regulation
Investors cannot be counted on to make rational choices so regulators need to "step into their footprints" and limit or ban the sale of potentially harmful products, the head of the UK's new consumer protection watchdog said.
In an interview with the Financial Times, Martin Wheatley, who will head up the Financial Conduct Authority (FCA), said the 2008 financial crisis had fundamentally reshaped regulators' assumptions about consumers.
"You have to assume that you don't have rational consumers. Faced with complex decisions or too much information, they default ... They hide behind credit rating agencies or behind the promises that are given to them by the salesperson," said Wheatley.
He said rather than simply ensuring consumers are provided with complete and accurate information, the FCA will be monitoring firms to make sure the right products get sold to the right consumers.
"This much more interventionist style in many respects [means] stepping into the footprints of the investors," he told the Financial Times.
For example, the recent £6bn payment protection insurance debacle might have been prevented if the FSA had had the power to tell banks to stop offering the product, Wheatley said.
But he added such bans would be "relatively rare ... Interventions should be the last tool you grab when all others have failed."
Instead, FCA supervisors would push firms to improve the way they designed and sold products.
"The profitability to the firm appears to be a bigger concern than the suitability to the customer," Wheatley said.
Categories: Regulation
Topics: Fsa
Comments
What?
So now the FSA look like they might come up with a way to measure the trust we can put in client answers to our finely honed questioning skills? Wow, this really goes beyong the normal fact finding process. We will not only have our fact find questions, that encompass the hard and soft facts, the nice to haves and the needs, the carefully contructed and even more carefully chosen by IFAs risk profile questionnaires, but presumably they will be marked somewhere between "this guy can be believed and this guy is obviously bonkers, don't trust a word he says, stick him in a cautious model portfolio along with eveyone else". Oh, sorry the FSA have a problem with model portfolios too, oh and DFMs, and DIFs. Please FSA, can you just tell me the answers you want us to give to clients, it will save us all about a billion hours between us.
Posted by: Stu
25 Jan 2012 | 09:30
Irrational - investors or FSA?
Well, if the FSA are planning to do that, the ideal candidates for being employed to carry it out would be IFAs because we are trained to spot the 'irrationality' in product offerings. But, as usual, I don't suppose IFAs will get a look in and any such jobs will go to that well known group of financial products 'experts', the big four accountancy companies (at up to £600 per person per hour - chaps, we don't charge enough obviously)
Posted by: Orlando Furioso
25 Jan 2012 | 11:33
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So now we will have to pay for a Regulator that wishes to protect the irrational. What about the schizophrenic and the psychotic – is it fair to leave them out and what about those with acne and dandruff?
Posted by: Harry Katz
25 Jan 2012 | 09:02
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