FSA proposes overhaul of financial products information

In a discussion paper Informing consumers: a review of product information at the point of sale, the regulator says that the current disclosure regime has brought benefits to consumers but the time is right to consider ways to make it work more effectively.

Todays paper invites views on a number of ways to boost consumers willingness and ability to read and understand product information, and to make fully informed choices as a result.

The FSAs Head of Consumer Policy, Victoria Raff, said:

Too many consumers are confused by the information they get. Its hard to identify the important material and the financial jargon can be completely impenetrable. Its in everyones interests that consumers are given information in a way which encourages them to understand the commitment theyre making before they sign on the dotted line.

The consequences for consumers of buying inappropriate or poor value products can be punishing, and in this area prevention is immeasurably better than cure.

Thats why we want to make sure consumers have realistic expectations about whether performance is guaranteed, whether the value of investments might fall and what the cost is if they cant keep up payments. And its important that they know what the benefits of a product are too. So we need to open up the debate about how to communicate essential information to consumers more effectively.

Todays discussion paper includes:

• Ideas for placing greater focus on helping consumers decide whether the product is the right sort of product for them
• Ways to encourage consumers to find out more about what theyre buying before they sign on the dotted line
• Options for making it easier for consumers to find and understand key information, such as the cost of the product, the risks involved, and what it aims to deliver.
  

Notes for editors

1. The present disclosure regime for life and pension products was introduced in 1995, and the regime for unit trusts, OEICs and investment trust saving schemes in 1997.

2. A central part of the regime is the provision of Key Features Documents before consumers buy, setting out the aims, commitment, risks, benefits and charges of a product, together with the cost of commission. For life and pensions products a personal illustration is provided which ensures that the information relates to the specific circumstances of the consumer concerned (eg age, sex, size of premium).

3. Since the regime was introduced prices across a range of products have fallen, although commission charges have not.

4. The FSA has conducted a programme of research on the effectiveness of key features. This is published as a companion volume to this document Informed decisions? How consumers use Key Features. This is available on the FSA Website under publications and from FSA Publications on 0845 608 2372.

5. Before making any changes to the regime, FSA plans to hold a further consultation in the third quarter of 2001. FSA is developing a disclosure regime for mortgages in tandem with this review. Detailed proposals will be published for consultation early next year.

6. The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; the protection of consumers; and fighting financial crime.

7. The FSA aims to maintain efficient, orderly and clean financial markets and help retail consumers achieve a fair deal.