Fit to fly and safe to eat, so why not good to buy?

Derek Bradley, CEO of PanaceaIFA.com, laments the FSA’s decision not to pre-approve financial products.

Last year, the FSA decided not to license or pre-approve financial services products. Chris Pond, head of consumer affairs at the FSA, maintains 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.’

Consumer detriment has become more and more acute over the years. This has been perpetuated by regulators noting flaws in product design or marketing but, frustratingly, only taking action after 
the event.

Regulation should be about being smart before the event. It should be about utilising experience when things go wrong to make sure mistakes do not happen twice.

To look at it from the other side of the fence, those who manufacture financial products are in business to make a profit. That profit – like all profit – can exist within the bounds of ethics and honesty.

However, it is always apparent that the FSA just does not understand the markets it purports to regulate. Why else would 
it have made an announcement such 
as this?

To license a product as fit for purpose is the single most effective consumer benefit a regulator could put in place. It is the Civil Aviation Authority’s equivalent of labelling an aircraft as fit to fly, or the same as the Food Standards Agency confirming a product as safe to eat.

I maintain that the decision not to license or pre-approve financial services products is nothing to do with resource, but with responsibility and who the finger points at when things go wrong.

One must remember that, as FSA chief executive Hector Sants pointed out last year, 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 its job, and then get them to take the blame when it all ends in tears.

It has been suggested that the extra resource needed would result in a huge increase in fees. In the short term, perhaps yes. However, if financial products were appropriately licensed there would inherently be fewer failures.

In any event, the FSA has certainly never found it difficult to raise money. It just goes to the very banks it regulates to raise the money then bills those it regulates to pay it back.

This is a debate which will continue to rage and the FSA needs to lead the charge. It can do this by demonstrating to the IFA community the importance of taking responsibility for all its actions.