FSA Annual Report 2006/07 - Better Regulation Ltd

Section six – Appendices
Appendix 2
109
Retail distribution review
Until the root causes of the problems in the retail distribution markets are
resolved only limited progress can be made towards improved outcomes for
consumers. The purpose of our retail distribution review is to deepen our
understanding of the root causes of the problems in the retail investment
market and then to help address them. We are working with industry-chaired
groups and consumer representatives to find solutions that are attractive
both to consumers and firms. There is an encouraging degree of consensus
emerging on the possible future shape of retail distribution.
Our Discussion Paper, to be published on 27 June, will set out the ideas that
have been put to us and will seek feedback on how far these can address the
problems that have been identified. We are giving a six-month period for
discussion so that we can undertake further work to assess the costs and
benefits of the options for change and the impact on different parts of the
market. This will help us decide whether any regulatory change is needed to
deliver the proposals and, if so, how to do this with appropriate periods of
transition to limit any adverse effects on the proper working of the market.
We are aware of the need to proceed cautiously and to consider carefully the
impact of potential changes. However, it is clear to us that current
arrangements are not sustainable, so we are determined to make progress.
Thematic work
Where similar issues arise in a number of different firms, we carry out
thematic work – a co-ordinated programme of work involving a number of
different firms to address an issue of potential or actual risk to our
objectives. In planning our programme we consider the overall impact on the
firms and markets we regulate. We have a range of regulatory tools that we
can use to assess and monitor the risks; mystery shopping is just one of them.
We also use, for example, desk-based reviews of firms’ product literature or
visits to firms.
There is no single prescribed sample size for a mystery shopping project; our
aim is always to make the research ‘fit for purpose’. In being proportionate,
we have to achieve the right balance between the cost to ourselves, the cost to
the industry and the level of coverage required to generate useful conclusions.
Qualitative samples are not (and are not meant to be) statistically
representative of the population being researched. Instead, they are designed
to reflect the target population by comprising a spread of the different types
within the population. Quantitative research is used to measure what
common behaviours or attitudes are, and so involves large samples that
represent the target population. Because of the much larger samples required,
quantitative research is more expensive and time consuming than qualitative
research, and we would only use it if our research objectives dictated it.
Our thematic plan for 2007/08 has fewer projects and is more clearly
positioned so that it highlights the key issues we are focussing on. We have
received positive feedback on this from industry and trade associations, who
have told us that this gives them a clearer understanding of what our
thematic priorities are and how we intend to address them. In the coming
period, we intend to focus on a smaller number of larger themes. In response
to requests from the Panel and other industry practitioners, we will say more
about the risks we decide not to address in line with our risked-based
approach. In all cases we will consider whether regulatory intervention is a
‘must-do’ rather than a ‘nice-to-do’.