Financial Services and Markets Appendices to the Minutes of Evidence




Definition of Consumer

  The current division between professional investor and retail consumer is one we would wish to see maintained. The relationship between a professional investor and adviser is one of near equals who are regularly in the market and should need less regulation. The relationship between consumer and adviser is usually one of unequal knowledge and irregular access to the market, therefore the degree of protection should be higher.

  We accept the NCC definition of a consumer.

Caveat Emptor

  We are unhappy with the phrase "Caveat Emptor" preferring instead "Consumer Responsibility". Whilst we understand that the nature of financial services products does not lend itself to easy comprehension, equally there are many other products that are purchased that are complicated and whose usefulness might change over time.

  If we are to have a regime of full disclosure there must be some onus on the consumer to concentrate on what is being advised, to give the adviser correct information on which to base the advice and to seek further advice when circumstances change. We call this "Consumer Responsibility".

  We do not wish to place undue onus on the consumer but to make the role of the advised an active one. We do not wish to see consumers encouraged to take a passive role in their financial futures secure in the knowledge that the phrase "I did not understand" would be the perfect form of defence against future changes in circumstances.

  All financial advice is based on a balance of possibilities. Advisers are not fortune-tellers and can only be judged on their advice at the time it is given. The outcome of that advice will be subject to a great number of forces, political, fiscal, legal commercial, etc., over which the adviser cannot have any influence.

  Whilst we are happy to be judged on the basis that our advice might be negligent, we cannot be expected to act as guarantor of the outcome of the advice. Nor should consumers be able to back one course of action and have a stake in other courses of action should they prove to be more beneficial.


  We are unclear whether an explicit objective to support the Bank of England to manage systemic risk would be helpful. We do wish to see the UK's excellent record of fine prudential regulation be maintained and can see a danger if the roles of the FSA and Bank of England are not clear to all.


  The inclusion of this area in the principles is we believe the minimum required. The actions of previous regulators in so publicly criticising "the shortcomings" of the industry have done much to give succour to our international competitors. It is also the case that such publicity has done much to undermine public confidence in the UK financial services market.


  Whilst we welcome the cost benefit analysis approach it does not give the whole story: many regulatory actions are almost impossible to cost, as on their own there is little apparent cost. However when one views such actions collectively the combined cost is high.

  We would also like to see an onus on the regulator to review their existing regime as to its costs and invasiveness on a regular basis. Here again we believe that there is a role for the Better Regulation Unit.

  We would also wish to see the regulator substantiating costs it might impose on an individual company in the course of regulating that firm.


  We welcome the new concentration on public awareness. It is in line with the IFAA checklist on regulation. 5. "Can you explain your proposals to the public?"

  Whilst any education of the public is a good idea we wish to ensure that the FSA is tasked with explaining its role and that of the regulatory regime to the public before embarking on wider forms of financial education. There is little point in creating a regime costing in excess of £300 million and the public being unaware of its scope and benefits.

  We are happy with the Chancellor's announcement but have some doubts whether league tables will succeed in comparing like with like on a consistent basis.


  Whilst regulated persons may think they are taking adequate steps to prevent financial crime, that does not mean that all financial crime will be prevented. When such crime is discovered whatever steps were taken previously must have been by definition inadequate. There is too much wisdom after the event in these proposals.


  We note the NCC's wish to insert concepts of "satisfactory quality" into the regime. Whilst we have no real objections to this there are serious issues surrounding how and when such judgments might be made. It might be easier to insert a concept of profoundly poor quality. Is quality the issue or are we really looking at value for money?

  Again we note the NCC's views on exclusion. We agree subject to an addition. It is not simply the right to product that should be included but the right to advice.


  We understand that there will be tension between objectives and between objectives and principles. Putting them in some priority order might be helpful now but what happens when priorities change as they inevitably will?

  We are somewhat concerned that objectives and principles might be used as an excuse for precipitate action against a particular sector.

31 March 1999

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