Consumer protection & product intervention
The Financial Services Authority (FSA) has opened the debate about how they, and the new Consumer Protection and Markets Authority (CPMA) in the future, can better protect consumers through financial product intervention.
This ‘radical rethink’ of financial services regulation could result in the introduction of price caps and also the ban of some types of financial regulation.
The Discussion Paper published this week asks whether the FSA (and proposed CPMA) should have more powers to intervene in the launch of products where there is a risk of consumer detriment.
This could mean that the regulator bans the use of some financial products for certain types of clients.
The new rules could also mean that investors would be unable to purchase some financial products on a non-advised (often called execution-only) basis in the future. This would apply to particularly complex financial products or those which carried the highest risk of consumer detriment.
There have also been suggestions that financial advisers should hold specific higher level professional qualifications before advising on certain complex financial products or investments.
To date, the FSA has focused on the advice and sales process rather than the design or suitability of financial products. It has become clear in recent years that the FSA has not managed to prevent severe consumer detriment with this focus.
These are positive proposals and it is reassuring that the FSA is now looking at the product side of regulation.
Whilst we would not want to see any anti-competitive regulation emerging from this consultation in the form of draconian price caps, there is an urgent need for the greater scrutiny of some financial products.
The suggestion that particularly complex or risky financial products are only available with the advice of a professional also makes real sense, although we recognise that some investors are perfectly capable of making their own investment decisions without advice.
The call to raise qualification standards again before advisers can recommend more complex products or investments also makes real sense.
This move is, in our view, inevitable and simply a progression of the current requirements for all financial advisers to hold a Level 4 professional qualification by the end of next year. We have been saying for some time that this was always going to be a stepping stone to even higher minimum qualification requirements in the future.
It will be very interesting to see how this debate evolves and what the final proposals look like when they are published.
Photo credit: Flickr/Lucy_Hill