A new “preventive” approach to investor protection by the UK’s financial watchdog aims to save money for companies and customers, but some of its actions are likely to raise City hackles, the Financial Conduct Authority’s chairman has said in his first public speech.
Since April 1, the FCA has worked with financial institutions to flag and resolve potential problems in areas such as interest-only mortgages, John Griffith-Jones said.
But not all the new watchdog’s moves will be uncontroversial.
“The earlier the intervention, the more contentious it is likely to be. Where the existence of a problem has not been established beyond all reasonable doubt, there will be vested interests with money at stake opposing our intervention,” Mr Griffith-Jones warned.
The industry can help avoid stand-offs with the regulator and regain the trust of the public by rooting out bad behaviour and putting more emphasis on building “good” culture, he said.
“We employ 3,000 people at the FCA to regulate an industry that employs directly over 1m people. Will we get a better regulatory result by 1m people playing cat and mouse with 3,000 or by 1m and 3,000 working together for the common good?”
Mr Griffith-Jones also highlighted three issues he said both the regulator and the industry need to work on.
“First, and most importantly, would be the narrowing of the gap between consumers and firms as to what a product that treated customers fairly actually looked like,” he said.
The FCA and industry also need to find ways to protect the most vulnerable and least knowledgeable customers without restricting choices for wealthier and more sophisticated investors, he said.
“Issues such as simple products, basic bank accounts and the need, or otherwise, for advice would be much easier to progress in such an environment,” he said.
Finally, Mr Griffith-Jones highlighted problems associated with long-term products, such as mortgages and long-term pension investments.
Companies often stuff the terms and conditions with “small print flexibility . . . to protect themselves from many eventualities that could occur” but customers do not read or understand the implications, he said.
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