FSA chief warns of grave risk to insurers and savers

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One of the Financial Service Authority's key directors last night gave a clear warning that millions of savers, and many of the investment and insurance companies that serve them, are in grave risk in the current uncertain economic climate from a legacy of poor corporate strategy, billowing costs, operational problems and weak controls.

John Tiner, the FSA's managing director in charge of consumer, investment and insurance, told a meeting of the Association of Investment Trust Companies: "The contribution of a less benign economic environment, powerfully performing equity markets, lower capital markets activity and a weaker credit environment are likely to erode many firms' profitability. It may well be the case that a strong market performance over the last decade has disguised poorly thought-out strategies, rapidly expanding cost bases, operating problems and weak management and systems controls. These are becoming exposed as difficult market conditions persist and can have an adverse effect from a market confidence and consumer protection perspective."

This, Mr Tiner believes, could hurt the public by leading them to invest in products offering the sort of high returns that were available in the 1990s, but at higher risk. As a result, consumers may enter "areas of complexity they cannot cope with and cause firms more difficulty in judging whether such products are suitable to their client's particular circumstances."

He also warned against savings products with innovative and "high-impact" structures.

"Such structures," Mr Tiner explained, "often rely on legal opinions where there is limited case law and judicial rulings may be hard to predict."