As the UK’s Financial Services Authority (FSA) itself would agree, its January 2011 Discussion Paper on product intervention signals a sea-change in the way retail financial products will be regulated in the UK. The proposed new approach outlined in the Discussion Paper involves the FSA (and, in the future, the yet-to-be created Financial Conduct Authority (FCA)) having the ability to intervene at a much earlier stage in the process of designing, creating and selling a financial product, rather than concentrating only on point-of sale processes and disclosure.

The FSA considers that its existing regulatory approach has not always achieved the right customer outcomes and that in some cases consumers have suffered losses due to breaches of the FSA’s Principles for Businesses and other rules. In the Discussion Paper, the FSA highlights three high-profile examples of where it considers the current regulatory approach has failed to adequately protect consumers in the UK – notably broker funds (where broker fund advisers took on a dual role of adviser to the retail investor and investment adviser/manager for the fund itself), structured capital-at-risk products (products whose terms provided that investors, in some circumstances, would not be entitled to the full return on their investments, which in some cases were sold to investors, such as retirees, who could not afford to lose capital) and self-certification mortgages. It is notable that, in seeking to set out justifications for a more intrusive style of regulation, the FSA has used these examples – two of which occurred prior to the arrival of the European point-of-sale directives designed to protect consumers, such as the Markets in Financial Instruments Directive (MiFID) and the Prospectus Directive, and the third of which (self-certification mortgages) does not represent an example of consumer detriment due to an inappropriate product (a self-certification mortgage providing the same set of rights and obligations for the retail customer as other mortgages), but instead due to the mortgage provider not taking on responsibility for protecting the customers from themselves.