The new Consumer Protection and Markets Authority should put consumer interests before those of the industry and learn from the Financial Services Authority’s mistakes, consumer groups have warned.
Responsible mortgage lending and fairer access to pensions are among the issues that consumer champions believe the new regulator should address.
The CPMA will take over the section of the FSA that deals with regulation of how products are sold to consumers, including the so-called “conduct of business” rules.
The move is part of the government’s plan to split the FSA in two parts, with a separate body to regulate capital adequacy in the banks.
“It is vital that consumer protection doesn’t get lost as the government embarks on what will inevitably be a very complex process of splitting the FSA into the new bodies and transferring responsibility to the Bank of England,” said Adam Phillips, chair of the Financial Services Consumer Panel.
The FSCP is calling for an end to complex products that make it difficult for consumers to compare pricing, along with responsible lending in the mortgage market and more transparency over banking costs.
The FSA has come under criticism for its policy of “reactive regulation”, which led it to clampdown on sales practices only after it was clear consumers had lost money – for example, through misselling scandals including split capital investment trusts, precipice bonds and mortgage endowment policies.
Ros Altmann, a consumer champion and pensions expert who has long lobbied for changes in the pension industry, said: “There are many areas in which I think one might fairly argue that the FSA has put the interests of the industry above the interests of the consumer.”
She argued that the FSA had made it “far too easy to borrow and far too hard to save” – contrasting self-certified mortgages, which allowed people to borrow well above their income, with complex regulations surrounding monthly savings schemes.
“I’m sure the new regulator can do a better job than the FSA – and I hope that it will,” she said.
But in March this year, FSA chief executive Hector Sants signalled an end to this policy, unveiling a new consumer protection strategy to focus on deterring problems before they arise, through greater supervision of firms.
Financial services companies called on the CPMA to take a co-operative approach to the industry. Peter Hargreaves, founder of Hargreaves Lansdown, said the new authority should listen to the industry’s concerns rather than impose fines.
“We know the problems in our industry better than the FSA,” he said. “Fining people and being adversarial is not good for the market and neither is it good for getting market intelligence.”
Hargreaves Lansdown paid a £300,000 fine in 2004 to the FSA over its advice on split capital investment trusts.
The Association of British Insurers said that while it was “open-minded” about changes to the regulatory structure, it was important that the proposals did not add further costs that would eventually be passed on to consumers.