The new Financial Conduct Authority (FCA), which will partly replace the Financial Services Authority, will have the power to instantly ban "unsuitable" financial products without consultation.
When the Financial Conduct Authority launches next year, one of its key new powers will be its ability to step in and ban the sale of products that it feels pose unacceptable risks to consumers for up to 12 months, without consulting first. It will also be able to ban misleading advertising on financial products.
From 2013 the Financial Services Authority will split into two new authorities: The Financial Conduct Authority (FCA), which will have responsibility for protecting consumers and The Prudential Regulation Authority (PRA), which will focus on maintaining financial stability.
The paper, The Journey to the FCA, set out how the UK's new financial conduct regulator will operate. It states: "Under the bill we had a clear mandate to make rules to ban products that pose unacceptable risks to consumers, subject to a consultation process. However, in cases where there is a need for prompt intervention, such rules can be made without consultation but will last for no more than 12 months.
"The bill also introduces a new element that would allow us to make rules ensuring consumers get their money back if they are sold a product after a ban or restriction comes into force. This could offer a powerful deterrent to firms that are not acting in the interest of their customers."
Martin Wheatley who will be chief executive of the Financial Conduct Authority has already made clear that he doesn't trust investors to decide for themselves. Earlier this year he told the Financial Times: "You have to assume that you don't have rational consumers. Faced with complex decisions or too much information, they default."
We have already seen a regulatory clampdown on esoteric investment products. The FSA is consulting on changing its rules to ban the promotion of unregulated collective investment schemes (UCIS) and close substitutes to ordinary retail investors in the UK.
The regulator is particularly concerned about traded life policy settlements (also called death bonds) which invest in life insurance policies, usually of US citizens. It issued guidance against marketing traded life settlements which led to EEA Fund Management being forced to suspend its traded life settlement funds. But Mr Wheatley has in the past also raised his concerns about structured products and exchange-traded funds.
