FSA Annual Report 2006/07 - Better Regulation Ltd

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Section six – Appendices
Appendix 2
Response to the Annual Report for 2006/07 of
the Consumer Panel
In its Annual Report for 2006/07, the Panel comments on a wide range of
our policies, plans and activities. We welcome the Panel’s support for
particular aspects of our work. In this response we focus on those areas on
which the Panel expresses concerns or criticisms.
Retail distribution review
We share the Panel’s desire to tackle the root causes of the problems in the
market for the retail distribution of savings and investment products and to
improve outcomes for consumers. The purpose of our retail distribution
review is to deepen our understanding of these root causes and then to help
address them. We are working with consumer representatives and groups of
market participants to find solutions that are attractive to both.
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 impact on
consumers and firms of the possible package of changes. The purpose of the
Discussion Paper is to open up the debate, so that we gather views from a
number of perspectives on the possible consequences of the ideas we set out
in the paper, and thereby further inform our analysis. We will particularly
welcome detailed comments from the Consumer Panel.
Whilst we would not want to pre-empt publication of our Discussion Paper
by raising specific issues here, we expect the review to lead to changes in
market practices for remunerating advisers, for instance by improving the
clarity on the services to be provided and how much they will cost the
consumer. Some changes in practice may need to be underpinned by changes
in regulation, and we will need to reflect EU and UK legislative requirements
in developing our proposals. Whilst we have not yet determined the detailed
nature and extent of such regulatory change, we want to take a risk-based
approach so that there are meaningful incentives for firms to adopt practices
that deliver good consumer outcomes and meaningful disincentives for those
that do not. But regulation is not the only trigger for firms to change; we
recognise that many firms have already changed their remuneration practices
and reduced the potential for poor advice for consumers.
Treating customers fairly
We set out targets we expected firms to reach by the end of March 2007.
Progress towards these targets has been mixed, with over 90% of major
retail firms, 87% of medium sized firms and 74% of wholesale firms meeting
the deadline, compared to just over 40% of smaller firms from our sample.
We have been encouraged by the commitment of management to get to grips
with the TCF principle but we agree with the Panel that this commitment is
yet to translate to widespread improvements in behaviour at the interface
with customers.