FSA signals move to product regulation
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Hector Sants, chief executive of the Financial Services Authority, has revealed the regulator’s plan to actively intervene in product design as part of its new consumer protection strategy.
Speaking today at the annual Lubbock Lecture at Oxford University’s Saïd Business School, Sants said that the FSA’s change in consumer protection strategy means the end of reactive regulation.
Sants says: “The ’old-style’ FSA rarely intervened until there was clear evidence that something had gone wrong.
“It was a retrospective form of regulation. Intervention needed to be based on observable historical facts.
“The old approach was never going to stop firms making mistakes, as that was not its intention. This was well supported by society and the city at the time.
“The new outcomes-based approach, however, is centred on intervening in a proactive way, and judging the future decisions of firms based on business model and other analysis.”
He goes on to say that previously regulatory intervention came too late in the product’s ’life cycle’ for the FSA to pick up on problems for consumers before they occured.
Sants says: “We will now seek to proactively intervene earlier in the product chain to anticipate consumer detriment and choke it off before it occurs.
“We will do this through using our integrated model of risk analysis and research to identify earlier sources of conduct risk; intervening further up the value chain and scrutinising products at the design stage.
“We will also use sector-wide intervention where necessary, for example to change incentives in a market.”
He adds that the Mortgage Market Review is a recent example of this plan already in action.
“We will now seek to proactively intervene earlier in the product chain to anticipate consumer detriment and choke it off before it occurs.”
Hector Sants, chief executive of the FSA
The regulator’s strategy going forward will mean the FSA will be able to make judgements on firm’s decisions, more mystery shopping exercises by the regulator and on-site visits.
It is also to carry out a review of the complaint-handling standards of the major banks.
Sants says: “A successful consumer protection strategy must restore consumer confidence in the financial market place.
“A key element of restoring that confidence is that the consumer can trust the regulator.
“This strategy will restore trust in the regulator and will benefit everyone, consumers and providers.”
He adds: “A regulator must be willing to place themselves between consumers and harm.
“We will only achieve this by taking a proactive stance.”
Readers' comments (3)
Grey Haired Underwriter | 15 Mar 2010 10:42 am
I find the arrogance of such a discredited body unbelievable. What the heck do the FSA know about lending or elnding products and when will they start to accept that the consumer also has to take some responsibility for their actions. Perhaps they will be providing dummies for the customer next.
Would anyone take their broken down car to a civil servant to get it fixed? Of course not not least because they won't have any idea as to how the car works. The FSA is the same - just civil servants playing at understanding the world of risk and lending - and failing badly yet again
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Bobby | 15 Mar 2010 11:59 am
The FSA are now trying to play the tough guy because for t5 years have done the square root of nothing to regulate 125% mortgages and the like. They have still failed to realise they are 2 years late as the market has already corrected itself. Earth calling Hector Sants, Earth calling Hector Sants can you read me ?. However they want to make it HARDER to get a mortgage , what were the figures for January, new mortgages down 49% and re mortgages and a new all time low. Well done FSA, finger on the pulse as always.
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Jules_London | 15 Mar 2010 6:50 pm
Everything is in order at the ever expanding regulator with a never ending job to do!
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