Outlook: Investor protection

HOWARD DAVIES, chairman of the Financial Services Authority, seems to be getting it in the neck from all directions at the moment. On the one hand he's criticised for creating an overbearing, unaccountable bureaucracy that if left unchecked, will smother the City goose under a mountain of regulatory red tape and drive its best practitioners off to the Bahamas, the Swiss valleys, or where ever. Now along comes the National Consumer Council to say that far from being too powerful, the FSA is not powerful enough.

As presently formulated, the Financial Services and Markets Bill makes "buyer beware" a core principle. The Bill includes a general consumer protection clause, but it also states that "consumers should take responsibility for their own decisions". According to the NCC, this affords a far lower degree of consumer protection than is common for most non-financial products, which are generally guaranteed to meet a minimum set of standards.

Many of the NCC's suggested remedies are pure fantasy, and it seems utterly to have missed the point that there can be no guarantees when it comes to investing money. On the other hand, the NCC is right to point to the appalling lack of clear comparative information about different financial products, and to insist that in such circumstances, consumers cannot make informed choices that weed out poor ones.

It also correctly identifies the FSA's most glaring flaw - that it is meant to combine both wholesale and retail regulation.

It may be appropriate for wholesale customers to take responsibility for their own decisions, but the issue is much more debatable for retail investors. Still, if the FSA is thought both to be too tough on practitioners and too lax on investor protection, that may mean that in an imperfect world, Mr Davies and the Government are getting the balance about right.

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