The FSA has published a speech by Clive Briault (Managing Director, Retail Markets, FSA) entitled The FSA's retail strategy. In this speech Mr Briault discusses the FSA’s retail strategy and the FSA’s key risks and priorities for 2008.
Mr Briault starts his speech by stating that the FSA’s retail strategy is to make retail markets work more effectively and efficiently and, as a consequence, to help retail consumers achieve a fair deal. This is something which is wider than just the Treating Customers Fairly initiative.
The FSA’s retail agenda is based around four "pillars" which reflect what it considers to be the four main features of an effective and efficient retail market. These pillars are:
- Capable and confident consumers.
- Clear, simple and understandable information provided for, and used by, consumers.
- Soundly managed and well resourced firms who treat their customers fairly.
- Proportionate, risk-based and principles-based regulation.
Alongside these pillars the FSA also focuses on structural problems in the market that might seriously hinder the achievement of an effective and efficient retail market. Hence the FSA’s work on the Retail Distribution Review, where the FSA is looking for market-led solutions to significant structural problems in the retail investment market.
Mr Briault then discusses the FSA’s retail strategy for 2008 which was set out in its Business Plan. The strategy comes under 3 headings which are:
- Prudential supervision.
- Conduct of business.
- Financial capability.
In relation to prudential supervision Mr Briault states that a major supervisory focus for the FSA will be that all types of firms - retail and wholesale - continue to maintain adequate financial resources. The FSA will also be looking to maintain its enhanced focus on liquidity, on stress-testing, and on gaining a better understanding of firms’ business models.
In relation to conduct of business the FSA will continue to drive forward its Treating Customers Fairly (TCF) initiative, the Retail Distribution Review, its enhanced small firms strategy, and its financial crime priorities.
Mr Briault mentions that the TCF deadlines that the FSA has set for firms are not negotiable. They should be met by all firms, irrespective of prevailing market conditions. The FSA will take regulatory action against those firms that fail to meet the deadlines, including, as appropriate, imposing demanding risk mitigation plans with challenging deadlines, varying firms' permissions, remediation work, and enforcement action.
Mr Briault then discusses TCF and with-profits funds. Mr Briault states that the FSA has seen improvements in how firms' senior management have delivered fair treatment to policyholders and have implemented changes to their governance arrangements. Nevertheless it is clear that further improvements are needed and the FSA will continue to challenge firms on the effectiveness of their governance arrangements. Mr Briault then comments on three examples, the distribution of excess surpluses, the fairness of market value adjustments that are applied to policyholders that surrender their policies early, and the clarity of post-sale communications to policyholders.
In the final part of his speech Mr Briault looks at the Retail Distribution Review. Here he states that the FSA intends to publish an Interim Report in April 2008 to be followed by a full Feedback Statement in October 2008. The Interim Report will not contain any decisions on the way forward – that is for October 2008. However, the FSA wants to use the Interim Report to discuss some of the more promising ideas that have been suggested to the FSA. In particular, Mr Briault expects the Interim Report to cover three key areas:
- Remuneration. Mr Briault states that many respondents have urged the FSA to take a principles-based approach and not prescribe a single option.
- Professionalism. Mr Briault states that many respondents support the higher minimum standards and enforceable codes of ethics.
- Primary advice. Mr Briault states that there has been little support from respondents on primary advice. However, many respondents still want some sort of “sales” service which is distinct from advice.
View FSA speech - The FSA's retail strategy, 27 February 2008