FSA needs to get consumer protection right

16 June 2009

The Financial Services Consumer Panel has today urged the FSA and Government to improve regulation for consumers in the light of the financial crisis, in addition to focusing on the regulation of the wholesale markets as set out in the Turner Review.

Adam Phillips, Acting Chairman of the Financial Services Consumer Panel said:

“This is the time to challenge whether the FSA’s overall regulatory approach works for consumers as well as markets.  We agree with the Turner Review that regulatory reform is necessary but we also want to see a clear focus on better outcomes for consumers.  It’s all very well concentrating on prudential reform to improve the stability of the industry, but that must not be at the expense of consumers.

The Panel has today submitted a paper of concrete changes which could help consumers.  One radical step would be to give the FSA power to regulate all aspects of business of the firms it already regulates, so consumer credit would move from the OFT to FSA for authorised firms.  We believe the FSA is better placed to put an end to firms lending irresponsibly and encouraging excessive debt – it is what most consumers assume happens now and it will stop firms hiding behind any division of regulatory duties between the OFT and FSA.” 

The Consumer Panel’s response to the Turner Report sets out where the FSA could do more for consumers:

• The FSA must deliver on its promise to increase its supervision of how firms conduct their business – as firms may be tempted go over the boundaries of good practice with the current  pressure to increase revenue and margins.  We believe consumers need to be safeguarded effectively.   It’s essential the FSA improves the quality of supervision and takes effective, timely action where necessary.

• The FSA must increase its scrutiny of firms’ business models not only to identify emerging and growing prudential risks, but also risks to the consumer.

• The FSA should become a more transparent regulator –  particularly by giving consumers information on the companies that are performing well as well as those that are performing badly, so they can be aware of shortcomings in firms before the ultimate sanction of enforcement action by the FSA

• The FSA should regulate all aspects of business of the firms it authorises, including provision of consumer credit at present regulated by the Office of Fair Trading.  Some of the most detrimental practices have occurred in the provision of credit.. There must be an end to institutions lending irresponsibly and so encouraging consumers to take on excessive debt. It makes sense to have credit and savings supervised by the same people.

• The FSA should take a tougher stance on Enforcement – the FSA has “upped the anti” with enforcement action recently, but there is still not enough follow through to ensure that consumers who have been adversely affected by firms’ behaviours, gain compensation.  The FSA must ensure that when they instruct firms  to undertake past business reviews, those who have been affected by the firm’s misdemeanour are effectively tracked down and compensated appropriately.

 

Notes to editors

1. The FSA established the independent Financial Services Consumer Panel in December 1998 to advise its Board on the interests and concerns of consumers and to report on the FSA’s performance in meeting its objectives. The Consumer Panel has statutory status.
   

2. The emphasis of the Panel’s work is on activities that are regulated by the FSA, although it may also look at the impact on consumers of activities outside but related to the FSA’s remit. What we're doing for consumers explains more about the work the Panel is doing.

3. The Consumer Panel brings together a wide range of relevant experience. This includes financial services regulation, working with vulnerable consumers, consumer protection, consumer education, front-line money advice, legal expertise, competition policy, public policy analysis, market research and media.

4. There are currently eleven members of the Panel as listed below (for further information on individual members, see Who is on the Panel)

Adam Phillips (Acting Chairman)
Kay Blair
Michael Chapman
Stephen Crampton
Caroline Gardner

Tony Hetherington
Nick Lord
David Metz
Lindsey Rogerson
Carol Stewart