FSA publishes feedback on options for regulation of stakeholder products

Michael Folger, Director,Conduct of Business Standards at the FSA, said:

"DP19 looked at ways to regulate the sales process for products which have risk controls built into them in a way that appropriately balances these two elements of consumer protection."

"We still have to recognise that for some consumers even simplified investment products would be a poor choice. So, before taking any decisions, the next step is consumer testing of a filtered questions approach to the sales process. That will help us assess how effectively it can help consumers make sensible choices."

Notes for editors

1. The Sandler review, published by the government in July 2002, recommended the development of a suite of simple and transparent regulated products, in respect of which the present approach to regulating the advice process could be removed altogether.

   The FSA is responsible for designing an appropriate and proportionate regulatory regime that recognises both the consumer protections delivered through the specification of such products and the risks to which consumers will still be exposed when buying these products. The detail of an appropriately differentiated sales regime will need to be tailored to the types of product involved and the specifications set for their design.

2. Simultaneously with FSAs release of its Feedback Statement, the government is today publishing its feedback on the parallel consultation on the nature and specification of a suite of stakeholder products. This provides a reference case for product specifications to help the FSA in designing its consumer research into ways of designing an effective regulatory regime for the sales process, guarding against mis-buying and mis-selling.

3. Options Considered in DP19

   (i) Self-help. Consumers would receive clear warnings about the basis of the sales process and relevant risks, which could be understood without further reference. Caveat emptor would apply and customers would be required to confirm that they understood the information given.

   (ii) Guided self-help. A series of filter questions, set by the FSA, would be used by the salesperson to screen out consumers who should not be thinking about buying the product concerned. Firms that had applied the simplified sales regime could not be held liable for poor advice, although consumers would still have protection against misrepresentation or fraud.

   (iii) Focussed advice. An adviser would make a limited assessment of individual suitability, to a scope set in FSA guidance. An adviser could give advice on the simplified suite of products only without having to train to the level required for the full range of regulated advice.

4. Feedback Statement 19 is available at www.fsa.gov.uk/pubs/discussion/fs19/

5. 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 appropriate degree of protection of consumers; and fighting financial crime.

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