A huge stick has been thrown in the wheel of the FSA's plans to develop rules for the manufacture an...
A huge stick has been thrown in the wheel of the FSA's plans to develop rules for the manufacture and sales of simplified products by its own Consumer Panel, which has rejected outright all the proposals contained in Discussion Paper 19.
The panel says that the simplified products would not meet demands of low- to middle-income earners, and as they stand would put IFAs in real danger of being accused of mis-selling because of the relaxation of rules designed to protect consumers.
Because of the panel's statutory position, the FSA must now put in writing its reasons for rejecting the Consumer Panel's points and proceeding with its plans in the face of such stiff criticism.
The proposed unitised and with profits products "include stock market investments that involve short-term risks to capital" the panel says, and the consumers to which these products are targeted are unlikely to have any appetite for such risk.
Claims are overblown that cautious fund management could manage the risk, the panel says, particularly in light of the losses suffered in the past year by such funds.
Instead, the panel says a wider range of products should be allowed, especially those without exposure to the stock market, such as a cash savings vehicle and a child trust fund type products for adults including promises of government matching.
A capital guaranteed product should be added to the range, and the panel says consumers will be willing to forego potential returns in return for "certainty of retaining their capital".
Finally, saying that consumers will not need advice on simplified products is wrong, and there cannot be any support for cutting down on regulatory protection unless consumers are offered another means of assessing suitability.
Neither the unitised or with profits products would protect consumers from losing some of their money, so, neither is safe enough to sell without normal suitability rules for advisers, the panel adds.
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