In his annual report, complaints commissioner Antony Townsend questioned whether the FCA’s conduct of business rules were strong enough to tackle this issue, and urged the regulator to review them.
He said that over the past year he had dealt with a number of cases which had caused difficulty because they involved unregulated products being offered by a regulated firm.
Mr Townsend added that 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 Service (Fos) and Financial Services Compensation Schemes (FSCS).”
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 that the FCA’s rules did not provide enough protection, but Mr Townsend dismissed the complaint because he could not find fault with the regulator’s process.
But he did urge the FCA to look at the issue, saying consumer understanding of what is not covered under Fos and the 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 Fos.
In recent months Fos has ruled on a number of different cases where unregulated products have been invested in self-invested personal pensions (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 which 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 Fos.
Jonothan McColgan, director of Bath-based Combined Financial Strategies, said: “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.”
