InvestmentsOct 17 2019

FCA says it's not its job to ban unsuitable products

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FCA says it's not its job to ban unsuitable products

The Financial Conduct Authority has reminded advisers it is not the regulator's job to ban high risk products as they might be appropriate for a "niche" part of the market. 

Speaking at the Personal Investment Management & Financial Advice Association summit in London yesterday (October 16) Debbie Gupta, director of life insurance and financial advice at the FCA, said the idea of an unsuitable investment was not a product in itself which the watchdog could identify and ban.

Ms Gupta said: "Unsuitable investments are, by definition, a subjective judgement based on the individual to whom they are being sold.

"Unsuitable investments are suitable for some people in some circumstances with proper controls. So I don’t believe it’s the FCA’s job to go in and ban products that might be suitable for some people in niche parts of the market."

The comments were made in response to a member of the audience asking why the FCA has not prosecuted those who sold unsuitable investments in the market. 

Ms Gupta added: "The key for us is advice, and was that advice suitable and were decisions made with a full and holistic understanding of the choices and the risks."

Ms Gupta's response suggested the regulator was not interesting in product regulation but last month FCA chairman Charles Randell hinted the regulator was poised to restrict the sale of high risk assets, although he warned banning unregulated products altogether was "not quite so simple".

Speaking at the Cambridge Economic Crime Symposium in September Mr Randell warned "skimmers and scammers" often operated in the "grey areas" around the boundaries of regulation and protection in financial services and admitted further action was needed to protect consumers.

The regulator's powers of intervention have been a topic of government debate in recent months, with the Treasury committee calling in August for the FCA to receive greater capacity to its regulatory scope to stamp out bad practice. 

MPs claimed the current system by which the FCA requests any changes to its regulatory scope from the government was "informal" and created a "grey area" between regulated and un-regulated activities which risked being exploited, such as in the case of London Capital & Finance which saw the funds of more than 14,000 bondholders put at risk.

The calls were backed by Mr Randell, who told MPs he was "personally very unhappy […] with the complexity of the perimeter of regulation" and warned "bad people" may exploit the grey area between where a consumer is protected by regulation and is not. 

But last week the government moved to deny the request, instead maintaining it did not see a case for providing a formal power for the FCA to request changes to the perimeter.