FSA successor to protect 'irrational' investors

Investors cannot be counted on to make rational choices so regulators need to "step into their footprints" and limit or ban the sale of potentially harmful products, the head of the UK's new consumer protection watchdog said.

In an interview with the Financial Times, Martin Wheatley, who will head up the Financial Conduct Authority (FCA), said the 2008 financial crisis had fundamentally reshaped regulators' assumptions about consumers.

"You have to assume that you don't have rational consumers. Faced with complex decisions or too much information, they default ... They hide behind credit rating agencies or behind the promises that are given to them by the salesperson," said Wheatley.

He said rather than simply ensuring consumers are provided with complete and accurate information, the FCA will be monitoring firms to make sure the right products get sold to the right consumers.

"This much more interventionist style in many respects [means] stepping into the footprints of the investors," he told the Financial Times.

For example, the recent £6bn payment protection insurance debacle might have been prevented if the FSA had had the power to tell banks to stop offering the product, Wheatley said.

But he added such bans would be "relatively rare ... Interventions should be the last tool you grab when all others have failed."

Instead, FCA supervisors would push firms to improve the way they designed and sold products.

"The profitability to the firm appears to be a bigger concern than the suitability to the customer," Wheatley said.