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Callum McCarthy identifies behaviour issue facing customers

Callum McCarthy, chairman of the FSA, today spoke at the First Joint European Competition and Consumer Day about behavioural issues facing consumers in the financial retail market.

McCarthy emphasised that seeking to solve these issues would be an important step towards creating an efficient market, and provide an opportunity for the FSA to reduce its regulatory activities.

In his speech, McCarthy identified three conditions that pose problems for the retails financial services market, and stressed the measures being taken by the FSA to tackle them.

The first problem area outlined was financial capability. McCarthy expressed concern that while customers are increasingly being asked to make financial decision, many do not possess adequate literacy and numeracy skills, or financial knowledge, to make them.

He pointed out that although the FSA is seeking to deal with this problem by initiating an improvement programme, it is ultimately the responsibility of the government and the education system to create a literate and numerate society.

In 2005-2006 the FSA plans to spend double the amount on financial capability that it did last year. But the challenge, McCarthy admitted, is identifying where efforts have the most effect and where expenditure has most leverage.

The second problem McCarthy highlighted was information. He pointed out that while this area will often be a problem, there has been unnecessary obfuscation and complexity.

However, the FSA has a basic principle that information should be fair, clear and not misleading, an emphasis on key facts that make it easier for consumers to compare products, and more product specific information requirements.

McCarthy pointed out that information requirements are most powerful when the product is relatively standard, and price the most significant factor. He also commented that both national and EU initiatives need to guard against data overload because more data has less chance of being read, or if read understood.

The FSA plans to review next year the documents that are required to be given to a prospective client for advised investment products, with a view to seeing how they can be simplified and the number reduced.

Lastly, McCarthy outlined the problem of providers of financial services who behave irresponsibly or dishonestly, because of a breakdown in internal systems and controls.

He emphasised that the FSA acts against misbehaviour, first of all by offering advice on how to prevent it happening, and, if necessary, through enforcement action.

McCarthy says: “If we succeed in solving these three behavioural problems, we will have made an important step towards an efficient market in retail financial products – and have the opportunity, which the FSA would welcome, to reduce our regulatory activities.”


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