Finance Watchdog to Protect ‘Irrational’ Consumers

PRLog (Press Release) - Jan. 31, 2012 - Martin Wheatley, who is the head of the Financial Conduct Authority (FCA), said regulators should ban potentially dangerous products to protect consumers from themselves, suggesting the FCS will be far tougher than the current Financial Services Authority in policing the retail investment market.

In his first big interview since joining the FCA last autumn, Mr Wheatley told the Financial Times that the 2008 financial crisis had fundamentally reshaped regulars’ assumptions about the people they protected.  

"You have to assume that you don't have rational consumers. Faced with complex decisions or too much information, they default ... They hide behind credit rating agencies or behind the promises that are given to them by the salesperson," said Mr Wheatley.

The FCA is expected to take on the Financial Services Authority's (FSA) retail market oversight duties from the end of next year as part of the Government's planned reorganisation of the UK's regulatory structure. Prior to this the FCA will be spun out as an independent agency from early next year.

Mr Wheatley admitted the FCA approach would represent a "much more interventionist style in many respects" and said that had the FSA been operating in this way it might have prevented the PPI mis-selling scandal.

Responding to comments by Martin Wheatley, Head of the Financial Conduct Authority (FCA), Professor Gulnur Muradoglu of Cass Business School’s (http://www.cass.city.ac.uk/) Behavioural Finance Working Group, said:

"The emphasis on an active rather than a passive role in consumer protection in financial markets is extremely progressive. This takes the UK one step ahead of the US and Europe.

“Many of the triggers of the 2008 financial crisis were behavioural.  The underestimation of risk by almost everyone in the economy was behavioural, as was the optimism, greed and herding of investors.  These are all part of human nature, and will not change.  Therefore a new regulatory stance is needed that will help to make investors, especially those on low income and the elderly, less vulnerable not only to others’ biases but also to their own.”

Professor Gulnur Muradoglu is a Professor of Finance and Director of the Behavioural Finance Working Group. She has also worked for Cass as the Director of PhD Programme (http://www.cass.city.ac.uk/courses/phd).  To speak to Professor Muradoglu who teaches PhD students. (http://www.cass.city.ac.uk/courses/phd/areas-of-study) at Cass Business School, please call Christ Johnson, Press Officer at Cass on 020 7040 5210.

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Cass Business School (http://www.cass.city.ac.uk/) is one of Europe’s leading providers of business and management education, consultancy and research.