FSA CEO outlines new conduct regulation strategy - consumer protection through early intervention

Hector Sants, chief executive of the Financial Services Authority (FSA), today outlined the FSA's new consumer protection strategy. Speaking at the annual Lubbock Lecture at Oxford University's Said Business School, Sants described how the regulator will deliver its new approach, involving early detection and intervention, through intensive supervision.

The FSA's consumer protection strategy seeks to achieve three goals:

• making the retail market work better for consumers;
• avoiding the crystallisation of conduct risks that exceed the FSA's risk tolerance; and
• delivering credible deterrence and prompt and effective redress for consumers.

It signals the end of 'reactive regulation' where, historically, the FSA waited for clear evidence that a product had been mis-sold and consumers harmed before it took action and relied principally on risk disclosure information at the point of sale to avoid mis-selling occurring.

Hector Sants said that "the mechanism for achieving this has three key strands:

• First, seeking to improve the long term efficiency and fairness of the market. This builds on initiatives we have recently undertaken such as the Mortgage Market Review.
• Second, delivering intensive supervision of firms.  The new supervisory approach will ensure firms treat their customers fairly and will equip the FSA to intervene earlier in the development of retail products.  Interventions of this nature which necessarily involve us making a judgement on potential detriment will need to be based on sound business-model analysis and integrated firm-risk assessment. 
• Third, in the event that failure has occurred we will secure the appropriate level of redress and compensation (when justified), and achieve effective credible deterrence by taking tough action against firms and individuals who have transgressed."

The new strategy, involving an integrated model of risk analysis and research, would see the FSA making judgements on firms' decisions and actively intervening in product design. There will also be a greater willingness to test outcomes through mystery shopping and on-site visits. Furthermore, the FSA will also improve the framework and delivery of redress to consumers, starting with a review of the complaint-handling standards of all the major banking groups. 

Hector Sants said: "A successful consumer protection strategy must restore consumer confidence in the financial market place.  A key element of restoring that confidence is that the consumer can trust the regulator.  This strategy will restore trust in the regulator and will benefit everyone, consumers and providers."

Hector Sants reiterated: "A regulator must be willing to place themselves between consumers and harm.  We will only achieve this by taking a proactive stance." 

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