The Financial Services Consumer Panel has highlighted legal restrictions on the FSA which the panel says are harming more consumers than they help.
Colin Brown, chairman of the panel, has written to FSA chairman Howard Davies, setting out the Panel's concerns.
As the law stands, once the FSA has received a complaint about an advertisement or any other promotion it is not allowed to say anything about its opinion on that promotion until a full enforcement process has been gone through, which may take months or even years. In many instances, the FSA simply persuades a firm to withdraw a potentially misleading advertisement rather than go through the lengthy enforcement process. In those cases, consumers may never be told that they may have been subjected to misleading promotional material.
These constraints were put into the system when the FSA was set up under the Financial Services and Markets Act 2000. They were intended to protect the reputation of firms when they are investigated by the FSA, but no decision is made against them. However, the Consumer Panel does not think that the current unwieldy system is appropriate or effective in dealing with the fast moving world of advertising.
The current arrangements for bringing misleading financial promotions to the attention of the public stand in stark contrast to those for advertising from other sectors. The Advertising Standards Authority takes an average of 21 days to resolve complaints and publishes its decisions on its website, where they are regularly picked up by the media, government and other interest groups. There is no such facility available to protect consumers in the often complicated decision-making process for financial products and services.
The FSA has responsibility for policing financial advertising and other promotions, to ensure that they meet the “clear, fair and not misleading” standard. The Consumer Panel has been pressing the FSA for some time now to make more of these powers and to encourage consumers to complain about material which they do not think meet those standards. The Panel was pleased with the FSA's initiative at the beginning of this month, to use the media and their website to promote their powers and explain how consumers can alert the FSA to financial promotional material which they believe to be misleading. The Panel looks forward to seeing continuing action from the FSA in this crucial area for consumers.
However, there is a commitment for FSMA to be reviewed by HM Treasury from two years after N2 (December 1 2003). The Consumer Panel wants the FSA to start thinking now about how the legislation could be changed to allow more details to be released about problems with financial advertising and/or the legal enforcement process to be speeded up.
Colin Brown says: “Consumers should have a better warning system than currently exists for misleading financial promotions. It is exactly the kind of problem that the review of FSMA will need to tackle after the Act has been working for two years. We are raising this issue now so that we can get ideas on how to improve the system on the table early.”