The Treasury surprised the financial services industry this week with an unexpectedly broad-brush inquiry which could mean far-reaching changes, good and not so good, for consumers.
There was bound to be a review of the first two years' working of the Financial Services and Markets Act, which provides the legal foundation for the Financial Services Authority (FSA) and its independent offshoots, the Financial Ombudsman Service (FOS) and the Financial Services Compensation Scheme.
But few expected Ruth Kelly, financial secretary to the Treasury, to use the review as an excuse to consider making it easier for employers, Citizens Advice Bureau and credit unions to offer specific advice. The powers of FOS could be expanded to include resolving consumer credit disputes, but the Ombudsman's decisions could be made subject to appeal.
Ms Kelly said: "I consider it appropriate that the circumstances in which the FSA takes regulatory action instead of industry cases being determined by the Ombudsman should be reviewed. In addition, I consider it appropriate to examine whether Ombudsman decisions should be subject to appeal. One option is to have a procedure for appeals on a point of policy in test cases."
But Ann Foster, new chairman of the Financial Services Consumer Panel, warned: "This could create an imbalance in the system for consumers who turn to the Ombudsman service as a simple and straightforward means of settling disputes."
Ms Kelly hinted that the financial services industry has called for people to be charged for complaining to the FOS, adding that she "would not support" any such change.
But the FOS is in line to lay down the law on consumer credit. Next month, Patricia Hewitt, Secretary of State at the Department of Trade and Industry, is to publish a White Paper on modernising consumer credit regulations. This will propose an alternative mechanism for resolving disputes, which could be given to the FOS to administer, subject to overcoming practicalities.
The review is also to undertake a "blue skies" examination of the boundary of regulation, including ways in which the rules covering advice could be streamlined.
One of the best places for consumers to take advice would be in the workplace, but many employers are nervous about allowing this, fearing they could be left open to lawsuits if the advice is faulty. Citizens' Advice Bureaux and other advice centres have similar concerns.
But Ms Kelly said: "We will be consulting publicly on whether more can be done to reduce the impact of regulation in these areas." She is also planning to bring forward proposals to curb unfair or misleading financial promotions.
But Mick McAteer, senior policy adviser at the Consumers' Association, dismissed the review for failing to tackle the problems which allowed the Equitable Life and split-capital scandals. He said: "What a wasted opportunity. The review is disappointing, with absolutely no recognition of the collapse in consumer confidence and the need for regulation to protect consumers.
"It shows little understanding of the need to review the nature and purpose of the regulation to fit the needs of consumers in the 21st century. It has failed to recognise that the Financial Services and Markets Act needs to be reviewed to assess the impact on consumer confidence following Equitable Life.
"We are particularly concerned about the consultation over when the FSA should replace decisions in individual cases by the Ombudsman, and over the possibility of appeals against Ombudsman decisions which could effectively fetter the Ombudsman's independence and effectiveness."Reuse content