The Financial Conduct Authority has said it is looking at the issue of regulated providers offering unregulated products after concerns were raised by the regulator’s watchdog.
In his annual report, complaints commissioner Antony Townsend questioned whether the FCA’s conduct of business rules are strong enough to tackle this issue and urged the regulator to review them.
He said he has dealt with a number of cases over the year which have caused difficulty because they involve unregulated products being offered by a regulated firm.
Mr Townsend said consumers often thought the FCA should take action against a regulated company but the regulator’s position was that the complainant had purchased an unregulated product and there was insufficient evidence of serious misconduct to justify its intervention.
The report said: “The commissioner’s view is that this illustrates a gap in the current regime.
“Ordinary retail consumers may understandably infer from the fact that a firm is regulated that they will enjoy protections which do not, in fact, exist.
“In two recent cases, the commissioner has urged the FCA to consider whether the current conduct of business rules are sufficient to ensure that regulated firms make it clear to consumers when they are supplying an unregulated product which is not underpinned by the protections of the Financial Ombudsman and Financial Services Compensation Schemes.”
One of the complaints to the FCA which Mr Townsend ruled on in February concerned an IFA who had recommended an unregulated investment.
The complainant was concerned the FCA’s rules do not provide enough protection but Mr Townsend dismissed the complaint because he could not find fault in the regulator’s process.
But he did urge the FCA to look at the issue, saying consumer understanding of what is not covered under the Fos and FSCS has “an equal, if not greater” importance than understanding what is covered.
The issue of regulated advisers recommending unregulated products has also been vexing the Fos.
In recent months the Fos has ruled on a number of different cases where unregulated products have been invested in Sipps, with one adviser recently trying to get out of having to pay compensation by claiming they were only advising on the tax wrapper, not its contents.
If the FCA does take action on this issue it could raise questions for Sipp providers, which are regulated companies but sometimes allow their clients to invest in unregulated products.
In response to Mr Townsend’s comments, the FCA said: “We note the commissioner’s view that it is not always sufficiently clear to consumers that when they obtain an unregulated product from a regulated firm they will not necessarily enjoy the protections offered by the FSCS and the Fos.
“This is a difficult area and we recognise the commissioner’s concerns. In line with the commissioner’s recommendations we are considering whether there is more we can do to help consumers in these circumstances.”
Adviser view
Jonothan McColgan, director of Bath-based Combined Financial Strategies, said: “I think it is important for everyone to know where they stand
“It is about being an ethical business. You have seen what’s happened in recent years with unregulated products in Sipps. We have ended up paying for those through the FSCS levy.”
