The new Financial Services Bill, which is being discussed by Parliament at the moment, contains a proposal that the new regulator should “have regard” to the principle that consumers should take responsibility for their decisions.
The Panel’s paper explains why it is unreasonable to expect consumers to understand the detail of highly complex financial products and services and the risks for consumers this principle creates.
The Panel argues that the overwhelming advantage firms have in knowledge and understanding means that it is essential for the regulator to ensure that products and services provided by the industry should do what consumers reasonably expect.
Adam Phillips, chair of the Consumer Panel, commented: “Clearly consumers need to act sensibly when making decisions about financial services. However, all too often the products they are being sold are so complex and the risks involved so obscure that it is impossible for them to make reasoned decisions.
“This is why the Panel believes that the new Financial Conduct Authority should be able to make rules to impose fiduciary responsibilities on the industry.
“This would ensure that consumers could be confident that the firms would act responsibly and treat them fairly. At present, the financial services industry is beset by low levels of compliance with regulation and high levels of complaints.
“Given the complexity of financial services, knowledge is power. This power currently resides in the hands of firms rather than consumers. It is time to redress the balance, not to load further responsibility onto consumers.”
