* Product ban would be for one year, non-renewable
* Curbs aimed at protecting consumer, boosting competition
* Lawyer says change amounts to regulatory product approval
By Huw Jones
LONDON, Dec 3 (Reuters) - Britain’s new financial watchdog will temporarily ban financial products for up to a year, rather than wait for the results of a full investigation, if it feels they do not offer value for money or make it harder for consumers to shop around.
The Financial Conduct Authority (FCA) will be launched in April to help draw a line under two decades of mis-selling endowment mortgages, pensions, loan insurance and other products.
The FCA started a public consultation on Monday on how its anticipated powers to temporarily ban products or limit how they will be sold, would work in practice.
Martin Wheatley, chief executive designate of the FCA, does not expect to issue temporary bans and curbs often, but said having such powers meant the watchdog could act more quickly than in the past so that fewer consumers were harmed.
UK regulators have traditionally resorted to consultations and probes before issuing any warnings or taking action, at the risk of piling up consumer pain and compensation bills.
Temporary bans, unless backed by later changes to the FCA’s rules, could only last a year and could not be renewed. During the ban, the FCA would examine whether it should be made permanent or lifted.
The bill for banks that mis-sold loan insurance is expected to be upwards of 15 billion pounds ($24 billion), a magnitude that prompted the Bank of England to tell lenders last week to build up their capital cushions.
Wheatley said the FCA’s board would decide on whether to issue temporary curbs lasting up to 12 months on products, or on the way products are sold.
“The use of the power will be a judgment based on the need to protect all market users, consumers and industry innovators alike, from the type of products which will cause harm and might generate compensation costs,” Wheatley said in a statement.
The FCA would step in quickly if there is likely to be “significant harm” to consumers.
Temporary measures could also be used to boost competition such as cracking down on complex pricing structures that make it difficult for consumers to shop around, the FCA said.
The new powers have already rattled the industry which has warned that innovation will be stifled, an accusation the FCA again dismissed on Monday, saying this risk was outweighed by the benefits to consumers.
Etay Katz, a financial services lawyer at Allen & Overy, said practical experience showed there will be a period of pronounced uncertainty and crude decisions until everyone understands the boundaries of the FCA’s new rules.
“Effectively, this amounts to a product approval process in all but name,” Katz said.
The FCA said investment firms are unlikely to be affected by product bans if the design of their products is right for their customers but that it would step in if a product is “inherently flawed”.
The FCA replaces the Financial Services Authority, which is being disbanded, and will have a remit to keep markets orderly, protect consumers and promote competition, applying lessons from the financial crisis.