Watchdog to change tack after scandals

Mar 13 2010 by Iain Laing, The Journal

THE City watchdog has announced plans to be more proactive in protecting consumers from mis-selling scandals.

The Financial Services Authority said it will vet products to ensure they are suitable before they go on sale, rather than focusing on helping consumers get redress once problems emerge.

The move marks a significant shift away from its current reactive regime under which it waits for clear evidence that a product has been mis-sold and consumers harmed before taking action.

Under the new regime, the regulator will work closely with firms as they develop financial products to see if they contain risks for consumers, before they are made widely available.

It will also look at how products are promoted and sold, with FSA staff posing as mystery shoppers to try to spot potential mis-selling scandals before they develop, while they will also carry out on-site visits at firms.

Hector Sants, chief executive of the FSA, outlined the plans at the annual Lubbock Lecture in Management Studies at the Said Business School at the University of Oxford.

He said: “We will now seek to proactively intervene earlier in the product chain to anticipate consumer detriment. A regulator must be willing to place themselves between consumers and harm. We will only achieve this by taking a positive stance.”

There have been a number of mis-selling scandals in recent years, including payment protection insurance, which in some cases was sold to people who would never be able to claim on the policies.

Personal pensions, endowment mortgages and split capital investment trusts have also been sold to large numbers of consumers despite being unsuitable.

Mr Sants said the FSA would also improve the way consumers get compensation, including carrying out a review of the way complaints are handled by the major banking groups.

The regulator said it plans to put more resources into protecting consumers, although it would not disclose a figure, saying its business plan for the coming year is due to be published next week.

But a spokeswoman stressed that the plan would be a “very resource-intensive strategy“.

However, the FSA does not plan to pre-approve every product that comes on to the market, claiming there are too many for this to be viable.