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FSA's Wheatley plays down product approval powers

by Michelle Abrego on Feb 27, 2013 at 14:09

FSA's Wheatley plays down product approval powers

The Financial Conduct Authority (FCA) does not want to pre-approve financial products, according to its incoming chief executive Martin Wheatley.

Appearing in front of the Banking Standards Committee, Wheatley (pictured) said he was concerned about giving simple products a kitemark for fear they would be mis-sold and at the other end of the market the regulator did not want to stifle innovation.

‘We don't see ourselves approving products,’ he said. ‘Not only is it near impossible but this would stop the industry innovating and creating.’

He said despite the FCA’s reluctance to regulate products prior to their launch there needed to be more done by the financial services industry to ensure products were suitable for consumers.

‘We are not supportive of a pre-approval process but there needs to be a change to communication from banks over products for the financial illiterate,’ he said.

Wheatley said the regulator would not be comfortable kitemarking simple products as it felt this could lead to intermediaries assuming they were suitable for all clients.

Wheatley said that kitemarking a product could be interpreted to mean that ‘this can be sold in all circumstances’.

'It would be very hard for me to stand back and say for simple products, don't worry,’ he said.

However, he said the regulator would not rule out a kitemark for simple products if it was made clear that these products would not be appropriate for all consumers.

Wheatley’s comments came in response to questions from Liberal Democrat MP John Thurso.

17 comments so far. Why not have your say?

Bob Donaldson

Feb 27, 2013 at 14:51

I thought we had stopped selling products and were now selling advice. Come on Mr Whetaley stay up with the game!

What is the definition of some who is financially illiterate?

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Feb 27, 2013 at 14:53

Mr Wheatly talks more sense than anyone else. He understands that an approved investment would open floodgates so the illeducated and sales only persons would pour through. I am all for simple products that can be combined to make a portfolio.

However I feel the regulator should inspect every product before public launch to see if it meets the overall standard of a retail product. This does not mean approval, but a system that weeds out proposals that are too obtuse to be understood by the general public. They should rubber stamp adverts shown to the general public as well.

If he could then prioitise his team to weed out the mercinary, jail the fraudsters and provide directly comparable total fee disclosures for fund managers.

Then leave advisory firms who have never had an upheld complaint alone!

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Compliance Officer

Feb 27, 2013 at 14:58

How many staff do you think that would take Hickky? Rubber stamping every advert in the digital age - surely impossible

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Paul Harding

Feb 27, 2013 at 15:13

Lets accept that maybe they cant positively "approve" products. However, wouldnt it be reasonable for the consumer (and advice community) to assume that if a product seeks and obtains "authorisation" it means the regulator has checked thoroughly and is happy with the following:

literature is accurate, complete and not misleading

the governance necessary within the "product" is in place and fit for purpose

the due diligence on all parties involved in the product was acceptable

an anti fraud mechanism is in place to prevent actions by individuals

client monies WILL be invested as described

individuals acting outside the scope on which authorisation was granted will be subject to prosecution and fines on their personal assets

All this stuff only needs doing after all in a way that can be relied upon but it only needs doign ocne not by everyone, and nobody is better palced to do it And if the regulator misses something, then the burden of any compensation due ought to fall on the general taxpayer rather than the industry as per Equitable Life and not as per FSCS current model. Or just bring in a product levy, with the amount based on risk assessment calcualted as part of this process of authorisation.

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Julian Stevens

Feb 27, 2013 at 15:18

So it'll be regulatory business as usual ~ hindsight reviews of all sales of products that, in one way or another, fail to meet expectations. Those who recommended them will be found guilty of mis-selling on the basis of having failed to undertake adequately rigorous due diligence. The FCA, meanwhile, will have washed its hands of all and any responsibility.

Unless, of course, Mr Wheatley honours his earlier declaration that the FCA does not intend to perpetuate the FSA's established policy of reviewing everything by hindsight. In which case, just who will be held responsible when a product authorised but not actually approved by the FCA goes down in flames?

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Compliance Officer

Feb 27, 2013 at 15:20


with this line:

"client monies WILL be invested as described"

You are asking them to gaurantee the future. That's never going to happen

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Green Eyed Monster

Feb 27, 2013 at 15:24

@ Paul Harding

That all makes eminent sense Paul, but Mr Wheatley is focussed on the banks, as floggers of product, not on you as a personal adviser to your clients.

Unfortunately up to now we have had a regulatory approach that assumes all regulated parties are product floggers. We need to get it across to Mr Wheatley that there is a whole section of the regulated community that actually works for their clients and nobody else.

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Paul Harding

Feb 27, 2013 at 15:31

@ compliance Officer

Guarantee that it does what it says on the tin is EXACTLY what we should be pressing for - surely?

Would you want to recommend a UK equity fund that could go and buy North Korean bonds on a hunch??

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Compliance Officer

Feb 27, 2013 at 15:37

how do you guarantee that Paul - approve every transaction?

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Feb 27, 2013 at 15:56

Whilst I agree with many comments above, a fact remains that the regulator does not want to be seen as responsible. I do think Mr Wheatly will given the time implement some sweeping changes, changes for the good of the consumer and advisers.

Who do I as an adviser complete due diligence on a fund or a DFM and know that this information is correct? Maybe it is here that the regulator should start! The result to clients and the advisers could be catastrophic if this information is not correct, investment strategy is not as stated and the literature is misleading. Yet time after time we see rated funds and investment companies fail, with no warning from any of the parties involved until it is to late.

What Arch Cru has highlighted is that any major rating agencies ratings and finding are worthless and that life companies and platform ratings should not be trusted. When a fund fails, the regulator will seek to blame the adviser for not completing sufficient and accurate research. If these bodies with all their resources cannot get it right, what chance does an adviser have.

To this end the rating agencies and those paid to monitor the funds should be liable, if it is proven that their monitoring, rating and information is incorrect or misleading.

The adviser does not have the resources of the regulator, the rating agencies, life companies or platforms. The client and adviser are paying for these institutes to provide accurate information.

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Feb 27, 2013 at 18:30

Guys... the product providers are very concerned about reputational risk... believe it or not they do want happy customers. If they are responsible providers their products should pass through a rigorous product lifetime model that identifies types of customers the product is likely to suit, and those it won't. Then it's down to the adviser to recommend these in appropriate circumstances.

Unfortunately different providers will adopt varying standards so advisers' due diligence should take account of those providers who have a good/poor product lifetime model process. If an adviser locks on to any 'next big thing' fund managed by some Tom, Dick or Harry with no real track record, then forgive me but you need to think about whether you should be let loose on the unsuspecting public.

Advisers are rightly liable for their advice... get in the progrramme or get out of it!

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phil castle via mobile

Feb 28, 2013 at 07:00

I agree with MartinIFA & Paul Harding. PLUS and I will quote Rory Percival from one of Citywire's article in a minute where he said IFAs can rely on FACTs but not opinion of providers. Key data were BOTH intermediary and provider who stated a fact I.e KPMG and HSBC which the FSA now tell us was NOT true and we could not rely on it despite the fact we were not informed until AFTER Keydata's collapse that the FSA didn't deem it appropriate to pass on this info when they first knew.

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Mark Graddage

Feb 28, 2013 at 07:48

If a product is authorised and regulated by the FCA/FSA and then is proved to be ' not what it says on the tin',then surely, if the product becomes another Arch or Keydata, the authoriser and regulator must be held responsible for not carrying out the initial due diligence necessary to enable the authorisation of the product.Or is that too logical?

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Julian Stevens

Feb 28, 2013 at 10:19

Yes, it's too logical. Mr Wheatley's claim that the regulator "doesn't want to stifle innovation" is hogwash. Innovation without the application of a regulatory system of checks and balances is highly irresponsible and poses a high risk of consumer detriment ~ exactly what the regulator, by its very constitution, is supposed to minimise.

Allowing unsound products into the market place on the grounds that it would be almost impossible to pre-vet them is a blatant abrogation of responsibility. Why is it impossible? It can't be a matter of cost because, as we've seen time and time again, whenever the regulator wants to do something it doesn't give two hoots about how much it'll cost. As with the RDR, it just ploughs ahead regardless of cost because the cost is always met by other parties. And the regulator, the FSA at least, certainly isn't above concocting a phoney Cost:Benefit Analysis to justify its proposals.

How much would it cost to set up and run a product analysis and approvals unit? A million pounds a year? In the context of the regulator's total operating budget, a million quid is peanuts.

The real reason is that the regulator doesn't want to be held accountable for the implosion of a product to which it may have accorded any sort of seal of approval.

On the basis of Mr Wheatley's argument, provided the regulator's application process for authorisation is properly followed, any provider can obtain authorisation or any old toxic garbage. And when that product goes down in flames, al the regulator has to do is say Ah, we may have authorised it but we didn't approve it. Whether or not the product was sound is a matter a adequate due diligence having been undertaken by anyone who recommended it. If the product fails and clients lose money as a result, then it's the fault of whoever may have sold/recommended it, nothing to do with us. I beg to differ.

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Feb 28, 2013 at 10:52

The general public think that the regulator is approving products already.

The FSA doesn't want the blame when the next failure occurs. Leave it to the advisers - they have to do due diligence etc. Of course we all have the resources to investigate every product provider to see if they are exceeding their briefs, have criminal intentions etc... It's absurd.

It should be like how drugs are regulated, rules for thorough testing, then NICE approve the drugs and the BMA regulate the doctors - and there are still scandals, but nothing like in our industry.

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Jonathan Kirby

Feb 28, 2013 at 14:42

So that's the end of Stakeholder then?

That was a simple product kite marked if ever I saw one.

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Julian Stevens

Feb 28, 2013 at 14:50

More like skid-marked.

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