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
16 April 1999