As the FSA publishes a discussion paper into product regulation, Which? is calling for a major overhaul of product regulation.
Which? chief executive, Peter Vicary-Smith, says: ‘We’re pleased to see Lord Turner recognise that the FSA’s ‘hands off’ approach to product regulation needs a serious overhaul. Which? has been campaigning for years for the FSA to tackle the problems at the heart of the industry – that many are fundamentally useless or, even worse, toxic to consumers.
‘If left to its own devices, the industry will spend its energy inventing products and sales practices that fill the balance sheets but don’t deliver for their customers. From pension and endowment mis-selling to PPI and most recently the emergence of identity theft insurance, this hall of shame is evidence enough that a new approach is long overdue.’
The actions Which? wants the CPMA to take
Which? believes that the Consumer Protection and Markets Agency (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. We believe 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’. A further example would be to set the default standards for some products in the interests of consumers – 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 take steps to introduce industry-wide standards such as portable bank account numbers for current accounts.
- Minimise the toxic aspects of products and in some cases prohibiting a particular type of product or specific product (for example single premium Payment Protection Insurance): Product regulation can play a valuable role in limiting the harm that certain products can cause.
- 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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