THE CREATION OF THE FCA


Under the Bill we have a clear mandate to make rules to ban products that pose unacceptable risks to consumers, subject to a consultation process. However, in cases where there is a need for prompt intervention, such rules can be made without consultation but will last for no more than 12 months. The Bill also introduces a new element that would allow us to make rules ensuring consumers get their money backif they are sold a product after a ban or restriction comes into force. This could offer a powerful deterrent to firms that are not acting in the interest of their customers.


In the FSA’s draft statement of policy for temporary intervention rules, the intended approach is outlined and gives potential intervention scenarios where we may consider making these rules without consultation.


What this will mean in practice


We are likely to consider temporary product intervention rules, such as limiting the sale of the product, where it appears necessary or expedient because the delay involved in consultation would prejudice consumer interests. Where significant harm is possible from the ongoing sale of a product, we will act quickly to limit the extent of the harm.


When making temporary product intervention rules, our focus will be on consumer protection. We will, for example, take into consideration the potential scale of harm to individual customers, and whether issues may lead to harm for particular groups of vulnerable customers. When determining whether temporary product intervention rules may be made, we will consider whether products are being targeted at the wrong consumers, and whether the inclusion or exclusion of certain product features will create widespread consumer harm.


We will develop our policy on product intervention rules between now and Day One.


Product pre-approval


We have already explored the possibility of a product pre-approval scheme and have ruled it out as a possible intervention to have in place on Day One.


 


In response to feedback on a Discussion Paper on product intervention last year, the FSA said pre-approval would require a marked increase in regulatory resources. It could also lead consumers to assume that all products had been endorsed by the regulator and were therefore ‘safe’. However, we recognise that product approval may have a place in particular circumstances.


Financial promotions


One of our new powers enables us to ban misleading financial promotions. This power means we can remove promotions immediately from the market, or prevent them from being used in the first place, without going through our enforcement process. By removing the risk of harm we help consumers; and other firms will benefit from a more transparent process.


The use of this new power will be determined by the specific promotion and not used against the firm as a whole. It can be used on its own or before we take enforcement action against a firm. It will work separately from our general disciplinary powers, which we will use when firms fail to comply with our rules and their overall systems and approach are poor.


The process we intend to adopt is highlighted in the diagram above. Following the third step, firms will be able to refer the matter to the Upper Tribunal if the FCA decides not to revoke the direction.


Using the new power is intended to help us to raise standards in a particular area, such as for new products, or relatively new channels like social media, as it will give a clear message to firms that are thinking of doing something similar.


The promotions where we use the power will not only be the worst cases, and we will not always measure harm to consumers in terms of actual or potential financial loss. We will also consider promotions that adversely affect consumers’ ability to make informed choices and secure the best deal for themselves.

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