The regulator has set out the circumstances under which the new Financial Conduct Authority (FCA) will exercise its temporary product intervention powers.
Under the new regulatory system, currently being legislated upon and set to be introduced early next year, the FCA will be able to make product intervention rules without consulting the public if it thinks delaying would be prejudicial to the interests of consumers.
In a draft statement of policy published by the Financial Services Authority (FSA), it was explained how scenarios where temporary product intervention rules may be made include:
Products being sold outside their target market or being inappropriately targeted - for example, widespread promotion/selling to types of consumer for whom the product is unlikely to be suitable
Products that would be acceptable but for the inclusion or exclusion of particular features - for example, products have specific terms or conditions (or, alternatively, lack certain terms or conditions) which make them inappropriate for a significant number of consumers, or for specified types of consumer
Products where there is a significant incentive for inappropriate or indiscriminate targeting of consumers - for example, where products are highly profitable but only likely to be appropriate for a narrower section of the retail market
Markets where the competitive pressure alone will not address concerns about a product - for example where competition focuses on irrelevant features and/or exploits systematic consumer weaknesses such that market-based solutions will not address the problem
Markets where firms restrict their product range or access to their product range in ways designed to increase profitability by restricting consumer choice, reducing competition, or creating barriers to search, switching, or entry
In some particularly serious cases, a product may be considered inherently flawed - for example, a product that offers such poor value or has such disadvantageous features that the majority of consumers, or specified types of consumer, are unlikely to benefit.
The FSA also provided examples of previous cases where the proposed powers could have been used, including the mis-selling of single premium payment protection insurance, structured capital at risk products and the high-risk combinations of features in the mortgage market.
With the new powers, the FCA will be able to ban products for up to 12 months without having to consult the public.
Earlier this year, Martin Wheatley, who will head up the FCA, cited traded life policy investments as type of product that may have been subject to such a ban.
