As the government launches a consultation on simple financial products, Which? is calling on the financial services industry to provide simple products that are easy to understand and compare.
Which? chief executive Peter Vicary-Smith, says: ‘For too long the financial services industry has traded on complexity, rather than offering simple, transparent products that consumers need.
‘The government must give the new Consumer Protection and Markets Authority the power to either set minimum standards or to ensure that it’s easier for customers to compare products.’
Consumer Protection and Markets Authority
In its consultation document, the government states that it ‘wants to see a thriving and trusted financial services marketplace, where consumers can buy the products they need with confidence. The government plans to set up a Consumer Protection and Markets Authority (CPMA).
‘The CPMA will be a strong consumer champion, tasked with ensuring confidence in financial services and markets. It will ensure that the interests of consumers and participants in financial markets are placed at the heart of the conduct regulatory system.’
Launching the consultation, Chief Secretary to the Treasury Mark Hoban said: ‘The government is committed to helping consumers take responsibility for their finances. In order to do this they need to be able to make sense of the huge range of financial products in the market. Simple financial products will help them to do that, by providing a safe choice and a common benchmark against which other products can be compared.’
Which? calls for the CPMA to embrace product regulation
Which? believes that the CPMA should embrace the role that product regulation can play in addressing conflicts of interest, disciplining markets and aligning the interests of producers with consumers. Product regulation could be used by the regulator to address three key issues:
- Ensure minimum standards for key products: There are certain products such as current accounts and protection products that consumers need access to. Which? believes the regulator should ensure that any such products meet minimum standards. We would draw a parallel with motor insurance where all products on sale must meet minimum legal requirements, and consumers then have the option to add on additional ‘bells and whistles’. For example, this could include ensuring that consumers are able to opt-out of unauthorised overdrafts for current accounts. The regulator may also take steps to ensure that information disclosure is on standard terms, enabling consumers to easily compare products. It could also take steps to introduce industry-wide standards such as portable bank account numbers for current accounts.
- Minimise the toxic aspects of products: Product regulation can play a valuable role in limiting the harm that certain products can cause. In some cases, a particular type of product or specific product should be prohibited, for example single premium Payment Protection Insurance (PPI).
- Ensure the availability of ‘vanilla’ products: Experience has shown that the financial services industry alone will not develop simple, good value for money products which meets consumers’ needs. We believe the regulator should pursue the idea that providers and intermediaries should offer simple, straightforwardly priced ‘vanilla’ products alongside their additional product offerings. This could be used alongside rules similar to the current “RU64” in the pensions area which requires firms to consider whether a simple good-value stakeholder pension would be more suitable than any more complex, higher-charging pension product which they are seeking to recommend.
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