FSCP: Consumers won't understand complex products

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The Financial Services Consumer Panel (FSCP) said it is "unreasonable" to expect consumers to understand complex financial products and services.

An FSCP briefing paper on consumer responsibility rejects a notion in the Financial Services Bill that regulators should "have regard" for consumer responsibility for financial decisions.

It concluded the "overwhelming advantage firms have in knowledge and understanding means it is essential for the regulator to ensure products and services do what consumers reasonably expect."

Adam Phillips, chair of the FSCP, said it was often "impossible" for consumers to make reasoned decisions given the complexity of the market.

"This is why the panel believes the new Financial Conduct Authority should be able to make rules to impose fiduciary responsibilities on the industry," he said.

"This would ensure consumers could be confident that the firms would act responsibly and treat them fairly. At present, the financial services industry is beset by low levels of compliance with regulation and high levels of complaints.

"Given the complexity of financial services, knowledge is power. This power currently resides in the hands of firms rather than consumers. It is time to redress the balance, not to load further responsibility onto consumers."

In a market where product complexity is high, the report suggests "the nature of risk is not transparent, and natural human behavioural biases have been exploited in a one-sided way."

The panel also questioned the power of the Money Advice Service, saying while it supported steps to improve financial capability, "firms will always have more information, capability and resource at their disposal than the consumers they interact with."

"Awareness of customer supporting bodies like the Financial Services Compensation Scheme and the Financial Ombudsman Service is low and only half of customers who remain dissatisfied with a firm's response to their complaint go on to pursue it with the Ombudsman," the report concluded. 

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