The FSA uses its powers to protect consumers

FSA Chairman Howard Davies said:

"One of our statutory objectives under the Financial Services and Markets Act is to secure an appropriate degree of protection for consumers. Now that we have been operating under our full legal powers since last December, we are able to use our full range of regulatory tools, including authorising firms and individuals, setting standards, monitoring compliance and enforcing our rules to help us achieve this aim."

The FSA's work on consumer protection is described in the FSA's Annual Report 2001/02 published today:

Authorisation: Consumers need to have confidence that they are dealing with authorised firms and individuals. Authorisation by the FSA provides a baseline standard for firms, who must show, for example, that they have adequate financial resources, and for individuals who have to be fit and proper to carry out their roles. In over 80 cases in 2001/02, applications for individual approval were refused or withdrawn while under investigation.

Policing the perimeter: The Financial Services and Markets Act establishes boundaries between those financial services activities that require authorisation and those that do not. The FSA detects unauthorised activity through preliminary enquiries and by following up leads. It also establishes whether there have been breaches of the financial promotion rules and the restrictions on people making a false claim to be authorised. Detailed investigation may follow with potential legal action against offenders including criminal prosecutions and prohibiting unfit individuals from taking jobs with authorised firms. During 2001/02, the FSA looked at 581 possible perimeter-related cases. Of these, 413 were closed after preliminary enquiries. Of these closed cases, 98 were dealt with by warning, 13 were referred to other external agencies and 302 were kept for intelligence purposes. Of the remaining 168 cases, 81 were the subject of ongoing preliminary enquiries and 87 were referred on for further investigation.

Treating customers fairly: FSA rules, inherited from previous regulators, currently focus mainly on what consumers are told while they are choosing products and at the point they buy them. The FSA is increasingly concentrating on what happens after the point of sale, including customers not being kept properly informed on the performance of their product; products and firms not always delivering what consumers were led to expect; customers being discouraged from changing products and providers; and not having their complaints dealt with fairly.

Fairness in marketing and advertising: Financial promotions and advertising play a significant role in the decisions consumers take, so advertisements need to be clear, fair and not misleading. The FSA dealt with more than 360 complaints from consumers last year, most resulting in the advertisements being changed or withdrawn. The FSA undertook a major review of its approach to promotions during the year and has developed a series of measures aiming to highlight good practice in this area and also bad practice, such as making unrealistic claims and burying important information in small print, and to encourage consumers to raise potentially unfair advertisements with us. The report of the Past Performance Task Force was published in September with the aim of securing a more balanced presentation of the benefits and the risks of particular products.

Mortgage endowments redress: The FSA has continued to work on past sales of mortgage endowments with the aim of ensuring that consumers receive appropriate information from firms. This should help them to decide whether they need to take action and also make them aware of how to complain if they believe they may have been mis-sold. The FSA also investigates instances of systematic mis-selling by individual firms and seeks redress for consumers where this has occurred. So far more than 330m has been paid out or set aside by firms for redress for mortgage endowment mis-selling.

Notes for editors

1. The FSA Annual Report 2001/02 is available on the FSA website at www.fsa.gov.uk.

2. 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; securing the appropriate degree of protection of consumers; and fighting financial crime.

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