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Financial Services and Markets Appendices to the Minutes of Evidence


Memorandum by AXA Sun Life

  AXA Sun Life wishes to make representations to the Joint Committee in support of the principle of "Caveat emptor" which is included in the draft Bill.

  The regulatory objective of consumer protection contained in clause 5 requires the Authority to have regard to " . . . the general principle that consumers should take responsibility for their decisions." This is consistent with the Gower report of 1984, which led to the Financial Services Act and stated " . . . it should [not] seek to achieve the impossible task of protecting fools from their own folly. All it should do is try to prevent people being made fools of." We understand that clause 5 has met with a mixed response, with the regulated community generally supporting the provision whilst consumer groups suggest that it is unfair to place the ultimate responsibility on retail consumers who are faced with difficult decisions, often on the basis of little knowledge.

  AXA Sun Life believes it is essential that the right of consumers to expect protection is balanced by a duty on consumers to make, and take responsibility for, informed decisions. The aim of regulation should be to put the consumer in a position where he can make a reasoned decision on the basis of clear and adequate information. This will also help stimulate competition in the market to develop innovative and cost effective products and services. If the consumer believed that his interests would be fully protected, even though he took no responsibility, he would have less incentive to make an informed decision and the need for him to seek information would be reduced.

  Whilst a consumer may initially have little knowledge, a range of opportunities exist for him to seek information and advice. Indeed another statutory objective is for the Authority to promote public understanding of the financial system. We agree with Stephen Byers, who said "the aim is to ensure customers have the ability to understand and question advice and literature they are given". In addition there is already a requirement for providers of some financial products to issue specified information to consumers before and after the sale is concluded and to provide a "cooling off" period in which the consumer can cancel without penalty. The thrust of legislation should be to ensure that consumers receive full information in a manner that empowers them to make decisions. The recent introduction of the "CAT" mark for Individual Savings Accounts illustrates new ways of providing consumer information in an easy to understand form.

  We are particularly concerned that the removal of the "caveat emptor" principle from the draft Bill will send the wrong message to consumers and may be misinterpreted by them. Removal at this stage is likely to attract more comment than if the principle had not been included in the initial draft and may encourage some consumers to make reckless decisions in the belief that their interests will be protected whatever happens.

  Financial decisions cover a wide spectrum of products and services and the appropriate degree of consumer protection needs to take account of both the type of investment or service and the experience of different consumer groups. Clause 5 of the Bill contains the flexibility necessary to match consumer protection to the range of situations that may arise. Within this framework, it is reasonable for the customer to retain some responsibility, with the product provider having responsibility to provide the information necessary for the customer to make his decision. AXA Sun Life therefore fully supports the principle set out in the Bill.

16 April 1999

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