The Financial Services Authority has ruled out introducing product pre-approval as part of its proposed stronger regulatory regime which will see its powers handed over to the new Consumer Protection and Markets Authority.
The FSA's head of consumer affairs Chris Pond told a Social Market Foundation event at the Labour Party conference that prohibitive costs would rule out financial firms being forced to submit new products for approval.
Mr Pond told the meeting: "We have stepped away from the idea of saying we will approve products in advance because we do not have the resources to do that."
The plans had been mooted in a 75-page FSA discussion paper published in January. At that time the regulator said: "We will now intervene earlier in the product value chain, proactively, to anticipate consumer detriment where possible and stop it before it occurs."
However the regulator reported "major implications" for the proposal of having a general requirement for all firms to have their products pre-approved. In particular it mentioned "massive resourcing implications for us requiring additional staff and systems."
It did put forward a case for pre-approving specific products where there are particular concerns. "Where we find recurring problems with a product type or in a specific firm, the benefits of controlling the supply of that product to the market or the actions of that firm may outweigh the costs involved," the FSA said. However, it added that a change in legislation would be needed if it wanted to take the idea forward.
In a response to the discussion paper published in June, the FSA confirmed that approach. It said: "We do not wish to rule [product pre-approval] out completely. If it ever becomes the best solution for a particular issue in the market, we think we should be able to consider it in relation to particular product types, as some respondents have suggested."
Mr Pond's statement to the Labour conference will therefore disappoint interventionists who believe cracking down on risky products before they are brought to market is the only way to safeguard consumers.
But there is some consolation for those demanding tougher action from the FSA. Mr Pond said the regulator is moving ahead with plans to intervene in the manufacture of products to prevent consumer detriment.
Meanwhile FSA non-executive director Brian Pomeroy called on financial firms to develop generic simple products to give consumers a better chance of comparing them.
Mr Pomeroy said consumers found it impossible to compare without generic benchmark products and called for firms to develop an industry-wide standard to promote competition and build consumer trust.Reuse content