British financial regulators have launched a consultation on new powers that will allow them to step in and protect retail clients from dangerous financial products.
The UK Financial Services Authority (FSA) initiated the consultation Monday on the approach the new Financial Conduct Authority (FCA) — which will replace the FSA in 2013 — should take if it needed to exercise powers to make temporary rule changes to protect customers, without undertaking any consultation.
The consultation outlines some instances which may trigger temporary rules being made, including: situations where the regulator believes a product is in serious danger of being sold to the wrong customers, for instance where complex or niche products are sold to the mass market; where a non-essential feature of a product seems to be causing serious problems for consumers; and, in the case of products that it judges as inherently flawed.
It says that product intervention rules may address a wide range of product-related issues by restricting the marketing of a product to only certain types of customer, or by requiring a product feature to be removed or changed in some way. Where there is high risk to consumers, the FCA might make a rule change to ban a product, it says, adding that it would only do so in very serious circumstances.
Other possible interventions, which would not necessarily require changes to rules, would include issuing warnings, or using supervisory powers to require firms to amend promotional materials.
Temporary rule changes without consultation would last for no longer than 12 months and could not be renewed, it says. During this time, the FCA will either consult on a permanent remedy or aim to resolve the problem another way.
“Making temporary product intervention rules is not something that we expect to do often but having this power means we can act quickly and decisively,” said Martin Wheatley, managing director of the FSA and CEO-designate of the FCA. “The use of the power will be a judgment based on the need to protect all market users, consumers and industry innovators alike, from the type of products which will cause harm and might generate compensation costs.”
The consultation runs until February 2013.