The test of the Financial Conduct Authority (FCA) will be whether it prevents toxic products from entering the market, Consumer Focus has said.
Chief executive Mike O'Connor welcomed the FCA's consumer focus but said inappropriate products should be stamped out before consumers are affected.
"The FCA promises it will be more concerned about protecting consumers, especially those in vulnerable positions, than protecting firms. This is as a very positive step forward.
"But the test of the FCA will be whether it prevents toxic products such as PPI, mortgage endowments or split capital trusts in the future. Will it intervene early or will pressure from industry delay action?"
He added: "A model where customers are ripped off, and then awarded compensation years afterwards, is expensive and wasteful and serves consumers badly."
Consumer Focus also backed the FCA's move to look across the market, rather than just focusing on individual firms.
Other reaction to the FCA paper:
Association of British Insurers (ABI) director of financial conduct regulation Maggie Craig said: "The FCA's approach to regulation must be about improving consumer outcomes. Its report rightly recognises the importance of promoting competition in the interest of consumers, and better understanding their needs, as well as the firms and markets it will regulate.
"The report builds on insurers' work to embed the principles of Treating Customers Fairly and we look forward to working in partnership with the regulator to take this further.
"Regulation must not be developed in isolation from public policy objectives. It is vital that the FCA's work supports wider initiatives, such as getting an ageing population saving for retirement, reforming long term care funding and improving consumer access to financial products that meet their needs."
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