Yudu - Journey to the FCA

THE CREATION OF THE FCA

The Government intends to give the FCA new powers to help it achieve these objectives. Further information on some of these is set out below.

Product governance and intervention

One of the key lessons we have learned from previous market failures, such as payment protection insurance (PPI), is that it can be much more effective to intervene early; to pre-empt and prevent widespread harm to consumers from happening in the first place, rather than clear up after the event. We will do this by improving the way we gather intelligence (including listening to comments from consumer organisations and whistleblowers), creating a bolder organisational culture, and adopting a new style of supervision.

How product governance is developing
The FSA’s consultation on non-mainstream pooled investments, published in August 2012, is an example of how work is developing in this area. This paper proposed the banning of the promotion of Unregulated Collective Investment Schemes (UCIS) and similar products to the vast majority of retail investors in the UK. This paper followed extensive work that found that three-quarters of advised sales of UCIS to retail customers were unsuitable.

For example, our new style of supervision means we will intervene earlier in a product’s lifespan and seek to address root causes of problems for consumers. We will do this by scrutinising firms’ product governance – how firms design, operate and sell products. This may include assessing, for example, whether the target consumers’ needs were taken into account in the product design; whether there is sufficient product oversight and monitoring of practical outcomes for consumers; and whether the distribution strategies are appropriate. The work of the FSA looking at retail product development and governance in the structured product review is an example of how this is already being taken forward.

One of our new powers enables us to ban misleading financial promotions.

We believe, as the FCA, it will be necessary for us to have a greater focus on product governance. The FSA has already proposed turning existing guidance on provider responsibilities into rules to complement point-of-sale obligations and cover the entire distribution chain. This will set outcome-focused responsibilities on firms to govern the design and delivery of products in a way that delivers fair results.

Provider firms will be expected to have robust procedures to assess their target market, perform adequate stress testing, and manage the product risks for consumers. We would expect the sorts of standards that consumers associate with basic vehicle safety or over-the-counter medicines, for example, to be the norm for widely sold financial products. Firms should also consider making their own pre-approval processes more transparent; the aim should be to increase the level of trust consumers have in financial products.

The FSA’s experience with many product mis-selling issues has been that products designed for a specific market were sold widely outside it. By putting more responsibility on providers to ensure that products only reach the customers they were designed for – and that they function as expected – there should be far fewer incidents of major consumer harm. It is likely we will go further than the FSA has previously done in challenging providers on the value-for-money of their products and checking that charging structures can still ensure good outcomes for consumers.

If necessary, we will be ready to intervene directly by making product intervention rules to prevent harm to consumers – for example, by restricting the use of specified product features or the promotion of particular product types to some or all consumers.

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Foreword by

John Griffith-Jones Introduction by

Martin Wheatley: Our vision for the Financial Conduct Authority

Chapter 1:

The creation of the FCA: Spotlight on some of our new powers

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Chapter 2: Protecting

the perimeter Chapter 3:

Ensuring firms continue to meet our standards

Chapter 4:

Taking action against firms that do not meet our standards

Chapter 5: Building our

understanding of the markets

Chapter 6:

Maintaining effective relationships

Chapter 7:

Accountability, transparency and measuring our success

Annex A:

Specific questions for consultation

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