FSA DP11/1: Product intervention

FSA’s “DP 11/1 Product Intervention” is an ill thought-out and poorly argued paper. FSA says its concern is over retail products not necessarily working well for consumers. The rules at present allow firms to sell virtually any product to any customers provided any advice is suitable and any product description is clear and fair. By and large this works well; some consumer loss from rule breaches is inevitable and where the firm does not offer recompense is picked up by the Ombudsman and Compensation schemes. The gluts of problem cases that each is experiencing do not reflect current practice but what happened - and was poorly supervised - five, ten or more years ago.

The problems are less severe now than previously. Many of the problems that FSA says justify further powers relate to products such as SCARPs or mortgage endowments sold 10 or even 20 years ago.

FSA already possesses all the tools it needs to deal with investor disadvantage. First, it kicked off its Treating Customers Fairly campaign over six years ago, since which time firms have introduced many of the product governance procedures that FSA is calling for, such as stress testing new products, ensuring appropriate distribution and quality of communication. Also, firms are already experiencing FSA's new intrusive approach to supervision, with FSA looking at business models and requiring evidence of pre-launch market testing. FSA needs to explain why these approaches are not working - and the paper does not do this.

FSA cannot be trusted with these powers. The suggested powers to cap prices or even ban products sit uneasily with FSA's declaration that it does not want to be a product gatekeeper and suggest that it is indeed hankering after a virtual zero-failure regime. FSA gives no indication of how it will be able to spot problems in advance so that it can use these tools effectively - it certainly does not have an impressive track record of doing this. It would be better off concentrating on its existing ample powers rather than seeking to saddle its successor with command-economy powers that can only raise public expectations without providing the mechanism for fulfilment.

The proposals are in any case incapable of implementation for many years. FSA can no longer unilaterally introduce new rules to cap price, ban products or require product licensing as all of these are incompatible with the EU directives that lay down the rules throughout Europe. All it can hope to do is to influence the EU debate - an acknowledged purpose of this paper - and the current EU stance is largely against product regulation.