Intriguingly entitled “Product Intervention”, this modest 72-pager (including appendices) could actually be the most explosive read this year. It is certainly likely to raise the temperature amongst brokers at this chilly time of year.
The discussion paper (DP) does nothing less that signpost a radical development in the way that the FSA intervenes in the market and makes it clear that this is the intended direction of travel for the Consumer Protection and Markets Authority (CPMA) when it is set up.
In its own words, the FSA “proposes a quite new and more intrusive approach to the regulation of retail financial services, aiming to ensure that potential consumer detriment problems are identified and offset at an early stage”.
What the regulator argues in this DP is that its role of making rules and supervising the market at the point of sale has not always achieved the right customer outcomes. It now wants to “intervene earlier in the product value chain, proactively, to anticipate consumer detriment and stop it before it occurs”.
The FSA evidences what it calls “a series of waves of major consumer detriment” over the last 20 years, which it and the Ombudsman Service have had to deal with.
Now they propose going back up the value chain and to stop the problems at source.
In other words, moving from “post-event sanction and redress” to “preventing detriment before it develops”.
And the paper makes it clear that this philosophy and the proposed actions are going to apply right across the market – from the most complex investment product through to the most simple mortgage products.
Yes, this applies to our market too.
How might it do this? Well, The FSA says new rules are likely to be required, rather than relying on a principles-based approach and the paper discusses a range of additional options.
Most will bear mainly upon product providers – the lenders in the mortgage market – and could include product pre-approval, the banning of products or certain product features, and direct pricing intervention.
However, for mortgage advisers, they could potentially require “point of sale benchmarking of the advice given against a low charged substitutable product”.
This last idea could mean, like in the world of pensions, that advisers have to justify in writing to their clients why the product is at least as suitable as a stakeholder pension.
Imagine that for every mortgage you advise that is not top of the best buy tables.
This has got to be one of the most important papers from the FSA for advisers to obtain, read, study, analyze and comment upon.
The introduction, written by Lord Turner, concludes that he hopes the DP will provoke a wide ranging debate. I think we can be sure it will.
Stephen Smith is director of housing at Legal & General
