The FSA wants the power to ban financial products, cap prices and add risk warnings to products, in a "radical rethink" of consumer protection rules.
In a discussion paper published today, the FSA outlines how it has already started a significant shift towards a more interventionist approach, with tighter supervision of the governance of product development.
But it also sets out a range of future interventions that could be introduced in areas where the potential for customer harm is greatest.
These could include banning whole products or their sale to specific groups of customers.
Consumer deposits, insurance policies, retail investment products, mortgages are the main focus of the planned overhaul.
However, in a move which may sit uneasily with previous proposals in the FSA's platforms paper, the regulator asks whether similar forms of intervention should be applied to the governance of services such as platforms and discretionary fund management.
The watchdog says it has ruled out becoming a pre-approver of all products, "at present".
But FSA pre-approval of a niche product may be appropriate in some circumstances, it says, adding it would need additional powers to facilitate this.
It could envisage requiring pre-notification of product launch or changes to existing products for particular firms or particular types of product, it says.
Banning of products should be considered where products have the potential to cause significant detriment, say the wathcdog, though it expects this to be "relatively rare".
However mandating or banning product features or exclusions should be considered wherever particular features are causing detriment, it says.
Price interventions are another area the FSA has earmarked for a more proactive approach.
Price capping is "very challenging to get right" but should not be ruled out for use in extreme circumstances, perhaps as an interim measure, the FSA says.
Increasing the prudential requirements on providers may be feasible, says the regulator, but effective only for small providers in some markets and in conjunction with other tools.
Consumer and industry warnings should be considered as a possible option, where the FSA has significant concerns about a product, it says.
Mandated risk warnings should also be considered as a possible option, where such disclosures would be likely to change behaviour.
Preventing non-advised sales, which the FSA has already adopted in some cases, should be considered an option use again in the future, it says.
Additional competence requirements for advisers, especially those selling products not suitable for the mass market, should also be considered as a possible option, the watchdog adds.
The FSA says its intention is not to create a ‘zero failure' regime where consumer detriment is impossible, but to cut the frequency with which large-scale market problems occur and, "if possible, to stop them from happening at all".
Any new powers would first be used by the FSA and then its successor the Consumer Protection and Markets Authority (CPMA).
FSA chairman, Lord Turner, says: "The crucial issue is how far along this spectrum of earlier and more intense interventions we should progress.
"This debate comes at a critical time as the scope and powers of the CPMA are being discussed by the government, parliament and stakeholders. It is fundamental to shaping the regulatory philosophy of the new organisation."
"Our analysis has led us to the conclusion that a significant shift in approach is required but there are important tradeoffs to be struck - between consumer protection and consumer choice, between effective regulation to prevent customer detriment and the costs that that will inevitably impose."
The consultation period will end on 21 April 2011.
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