Govt warned intervention risks ‘safe' product assumption

Government plans to give the FSA's successor powers to intervene in product regulation could lead the public to expect they have been endorsed by the regulator and so are ‘safe', ministers have been warned.

Several respondents to the Treasury's consultation on financial regulation raised the concern if plans to extend the Financial Conduct Authority's (FCA) powers beyond those of the FSA, including to ban products, go ahead.

The fears were published today in a government white paper, A new approach to financial regulation: the blueprint for reform.

Other respondents suggested consumers may look to jurisdictions outside the UK to purchase riskier products, negatively affecting British competitiveness.

To mitigate these risks, some industry respondents said the new power should be used only as a last resort, where a problem with product is genuinely industry-wide and no other regulatory tool would enable the FCA to reduce consumer detriment.

Opponenets of the power added that it pre-judges the outcome of the FSA's discussion paper on product intervention and the European Commission's MiFID review.

They also argued the FSA already had sufficient powers to intervene in relation to financial products on a firm-specific basis.

There was a general consensus that, for product intervention to be effective, the FCA will need to develop expertise in financial products, and proactively engage with industry on issues related to product features, design and governance.

"It was also clear that the scope of and reasons for any intervention should be clearly and fairly communicated, to give clarity and certainty to both firms and consumers," the paper said.

Finally, the paper said there was strong support for the government not to support the pre-approval of products by the FCA, and that product intervention should not be appropriate for professional or wholesale customers.

The Treasury is requesting responses to today's paper until 8 September 2011, which can be emailed to financial.reform@hmtreasury.gsi.gov.uk.