The recent discussion paper on product intervention is basically a 75-page confession by the FSA of its many failings in the retail market. But does it know how to put things right?
The FSA is right to bump up its supervision of product design, packaging and distribution at a much earlier stage than point of sale to an often bewildered consumer.
Advisers have been calling for providers to face the same scrutiny as they do before a product is even offered to the market, and the FSA is surely right to talk about looking at the "whole of the product lifecycle from start to finish".
However, already there are worrying gaps appearing. Even if we have much more supervision at an earlier stage of product design and then sale (advised or non-advised to the consumer), the lifecycle of the product does not end there.
As we have seen with the debacle of Lehman-backed products and the demise of Keydata, circumstances can change in the financial world and often dramatically. What the FSA has not been good at in the past is flagging up potential problems with products at whatever stage of the cycle.
Flaws in a particular product may come to light only years after launch or when it has been stress-tested by particularly trying circumstances. The regulator needs to be better at flagging these problems up earlier to providers, advisers and consumers and ensure they take an immediate look at similar products which may also be impacted.
Where the FSA has got it right is treading the fine line between allowing product innovation and competition and ensuring consumers are properly protected. The FSA has stopped short of using the term 'product regulation' with the word 'intervention', implying action will be taken where necessary, but the regulator will not be using strong-arm tactics indiscriminately.
The onus will now be on product providers, as well as their boards and risk committees, to ensure their products are well designed and competitively priced or the regulator will be breathing down their necks.
Its tougher stance on product labelling for consumers is also to be applauded but plans in this areas also need to be refined and tested on consumers.
However, one area which will be a big bone of contention for advisers is the FSA's proposals around extra qualifications for advisers on potentially troublesome products.
There are many questions to be answered here. How do these proposals fit in with current RDR plans, especially around the requirement for ‘independent' advisers to consider the full range of retail investment products? What will the new qualifications entail? Will they be exam-based? Could there be a gap between a new type of product being launched and anyone being qualified enough to advise on it?
The main question though is one which has been asked continuously over the past few years. Will today's proposals and the RDR actually make a substantial difference and stop consumers getting a raw deal?
This question will take longer to answer but one thing is clear: the FSA and its successor the CPMA cannot afford to get this wrong again.
Let us hope this new, tougher regime will prove more effective than principles-based regulation.
Caring for children and elderly relatives
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