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Regulaton and the long term
Finance & Accounting
Pages 3 (753 words)
Question 1(a) Since 1990’s, the conduct of dealers in financial services sector have been a major issue; leading to low confidence particularly due to rampant miss-selling of financial products to customers. These services include mortgage endowment policies, personal pensions, and payment protection insurance and split capital investment trusts.
In response to these issues, the select committee suggested formation of Financial Conduct Authority (FCA), which drafted detailed regulatory rules to act as guidance of conduct of financial product dealers. According to Olsen (2008), these rules have become a challenge in selling of the financial products by failing to deliver the outcomes intended. For instance; they have failed to cover all kinds of firms or businesses thereby not being responsive to structural changes and market innovations. Secondly, these rules are known to address processes rather than outcomes hence encouraging non- compliance that can inhibit innovation and competition. Finally, the rules have failed to guard against miss-selling behaviors as firms continue to offer poor quality products and advice to consumers without giving a clear element of risk associated with a given product. Question 1(b) Information symmetry Information should be left to flow freely such that every buyer gets to know changes in prices across the market. This will help in price homogeneity and also lead to market innovations as different firms try to devise new ways to outpace their competitors. Further, the regulations as set by FSA should not only target to streamline the process of selling the financial products, but also lead to the desired outcomes. ...
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