SUBJECTS COVERED BY THE EVIDENCE OF THE 23
Definition of Consumer
The current division between professional investor
and retail consumer is one we would wish to see maintained. The
relationship between a professional investor and adviser is one
of near equals who are regularly in the market and should need
less regulation. The relationship between consumer and adviser
is usually one of unequal knowledge and irregular access to the
market, therefore the degree of protection should be higher.
We accept the NCC definition of a consumer.
We are unhappy with the phrase "Caveat
Emptor" preferring instead "Consumer Responsibility".
Whilst we understand that the nature of financial services products
does not lend itself to easy comprehension, equally there are
many other products that are purchased that are complicated and
whose usefulness might change over time.
If we are to have a regime of full disclosure
there must be some onus on the consumer to concentrate on what
is being advised, to give the adviser correct information on which
to base the advice and to seek further advice when circumstances
change. We call this "Consumer Responsibility".
We do not wish to place undue onus on the consumer
but to make the role of the advised an active one. We do not wish
to see consumers encouraged to take a passive role in their financial
futures secure in the knowledge that the phrase "I did not
understand" would be the perfect form of defence against
future changes in circumstances.
All financial advice is based on a balance of
possibilities. Advisers are not fortune-tellers and can only be
judged on their advice at the time it is given. The outcome of
that advice will be subject to a great number of forces, political,
fiscal, legal commercial, etc., over which the adviser cannot
have any influence.
Whilst we are happy to be judged on the basis
that our advice might be negligent, we cannot be expected to act
as guarantor of the outcome of the advice. Nor should consumers
be able to back one course of action and have a stake in other
courses of action should they prove to be more beneficial.
We are unclear whether an explicit objective
to support the Bank of England to manage systemic risk would be
helpful. We do wish to see the UK's excellent record of fine prudential
regulation be maintained and can see a danger if the roles of
the FSA and Bank of England are not clear to all.
The inclusion of this area in the principles
is we believe the minimum required. The actions of previous regulators
in so publicly criticising "the shortcomings" of the
industry have done much to give succour to our international competitors.
It is also the case that such publicity has done much to undermine
public confidence in the UK financial services market.
Whilst we welcome the cost benefit analysis
approach it does not give the whole story: many regulatory actions
are almost impossible to cost, as on their own there is little
apparent cost. However when one views such actions collectively
the combined cost is high.
We would also like to see an onus on the regulator
to review their existing regime as to its costs and invasiveness
on a regular basis. Here again we believe that there is a role
for the Better Regulation Unit.
We would also wish to see the regulator substantiating
costs it might impose on an individual company in the course of
regulating that firm.
We welcome the new concentration on public awareness.
It is in line with the IFAA checklist on regulation. 5. "Can
you explain your proposals to the public?"
Whilst any education of the public is a good
idea we wish to ensure that the FSA is tasked with explaining
its role and that of the regulatory regime to the public before
embarking on wider forms of financial education. There is little
point in creating a regime costing in excess of £300 million
and the public being unaware of its scope and benefits.
We are happy with the Chancellor's announcement
but have some doubts whether league tables will succeed in comparing
like with like on a consistent basis.
Whilst regulated persons may think they are
taking adequate steps to prevent financial crime, that does not
mean that all financial crime will be prevented. When such crime
is discovered whatever steps were taken previously must have been
by definition inadequate. There is too much wisdom after the event
in these proposals.
We note the NCC's wish to insert concepts of
"satisfactory quality" into the regime. Whilst we have
no real objections to this there are serious issues surrounding
how and when such judgments might be made. It might be easier
to insert a concept of profoundly poor quality. Is quality the
issue or are we really looking at value for money?
Again we note the NCC's views on exclusion.
We agree subject to an addition. It is not simply the right to
product that should be included but the right to advice.
We understand that there will be tension between
objectives and between objectives and principles. Putting them
in some priority order might be helpful now but what happens when
priorities change as they inevitably will?
We are somewhat concerned that objectives and
principles might be used as an excuse for precipitate action against
a particular sector.
31 March 1999