28th September 2011
Nothing to do with me mate!
I read with an element of dismay yet some lack of surprise that the FSA has decided not to license or pre-approve financial services products due to a “lack of resources”.
Citywire quoted FSA head of consumer affairs Chris Pond as saying that “product pre-approval would have proved problematic” and that 'we have stepped away from the idea of saying we will approve products in advance because we do not have the resources to do that and then there are problems with people saying this product is fine”.
Over a considerable number of years ‘Consumer detriment’ has been seen because the regulator has noted flaws in product design, marketing or understanding of outcome and purpose- and yes you have guessed it, all with the benefit of hindsight.
Regulation should be about being smart and not wise after the event. It should be about utilising experience when things going wrong to make sure mistakes and failures do not happen twice.
Those ‘Manufacturers’ of product are in business to make a profit and that profit, as Paul Barnard observed, “can be made quite ethically and honestly”, but he has an “overwhelming feeling that our regulator just doesn't understand the markets it purports to regulate”.
To licence a product as fit for purpose, with that purpose clearly defined, as part of the process is the single most effective consumer benefit a regulator could put in place.
It is the CAA equivalent of being fit to fly, it is the Food Standards Agency equivalent of safe to eat, it is the VOSA equivalent of saying your car is safe to drive.
This decision is nothing to do with resource, it is to do with responsibility and who the finger points at when things go wrong. We should remember that as Sants pointed out at the TSC hearings if responsibility fell upon the shoulders of those at the FSA, nobody would want to do the job.
A regulator cannot rely on someone else to do the job, and then get him or her to take the blame when it all ends in tears because they did not have the “resource” to do what was right.
Some have suggested that the resource needed would result in a huge increase in fees, perhaps the contra view that because products are licenced there would be fewer failures to fund might be more appropriate.
In any event, the FSA has never found it difficult to raise money to fund its activities in the past, in fact it just goes to the very banks it regulates to raise the money then bills those it regulates to pay it back.
I am sure that this will generate a lot of debate, perhaps as Tony Laverick commented the justification should read "through being inefficient, incompetent and frightened to take any responsibility whatsoever for the consequences of our own actions we are not going to effect product pre-approval” and so are handing back the keys of responsibility to you.
Comments (3)
I have to agree with the FSA. There are thousands of products/funds launched every year and some of them will come from EU under UCITS/MiFID rules. There are no money to check everything. I don't want to pay a higher FSA fee for that and to create a 'mega' FSA.
There are general rules for units trusts/ OEICs etc like the VOSA standards. That didn't stop Toyota to make a faulty car. All FSA has to do is supervision and enforcement where there is information that something is wrong.
Some 'wrong' products have a faulty design, some have people that are not fit for purpose managing funds/looking after the assets, some are only suitable for a small part of our clientelle.
It's our job as IFAs to find the right products which are suitable for our clients and to review these products on an ongoing basis. My way is to keep it simple. I avoid complicated products and use only the maistream products: equity/bonds/commercial property unit trusts/OEICs and investment trusts.
Eugen Neagu 28/09/2011 09:18
In the case of Toyota the manufacturer recalled the product to fix the fault. In our industry that rarely if ever happens and it is more often the IFA that should have had the foresight to see the fault and compensate who is seen at fault.
The product may be fine, the purpose it was used for wrong. By linking the 2 as suggested by way of suitable products for particular circumstances the Consumer is better protected.
This is, as said, about taking responsibility and to do that would not be attractive for FSA staff.
cortesin 28/09/2011 09:55
No business deliberately sets out to cheat its customers. If it did the markets discovery process would find it out and the business would fail. (The banks are a special case since they are not subject to market discipline bening an officially sanctioned cartel supplier of a monopoly product and given special privilidges). The analogy with Toyota is a good one since again if an FS provider finds out that he has in some way failed it will pay him to sort it out as reputation is more valuablle than anything. However it is not reasonable to hold a provider responsible for market volatility when that same volatility is caused by policy and regulatory failure - e.g. the banking collapse.
The Failed FSA is right not to pre-approve products, but for the wrong reasons. It just wants to duck responsibility, which is in itself an admission that it is largely ignorant and will ever be so.
This action can be taken as evidence that the whole Failed FSA msut be shut down and salt ground into the land it stands on.
Steven Farrall 28/09/2011 10:14
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