Head of the FCA Praises Use of Behavioural Economics

Martin Wheatley, the head of the Financial Conduct Authority, used a speech to the London School of Economics to tell his audience that he wanted to bring a “more human” face to the regulator

Tim Myatt PhD
Author Tim Myatt PhD
Date 12th April 2013

Last week the FCA took over many of the roles of the Financial Services Authority including regulation and guidance with respect to investments and risk.

Acknowledging the past failures of the FSA, Wheatley explained that he wanted, “a more pragmatic approach to regulation,” from the new regulator “in order to encourage better decision-making among consumers.”

He praised the work of “the best financial service companies … who go to considerable pains to make sure their customers are steered towards the best products and the most suitable.” Here at Oxford Risk we agree, and the launch in May of the new Oxford Risk Rating Online will further assist advisors to recommend suitable investments to their customers.

Wheatley also explained how the FCA will be using behavioural economics in the years ahead. He acknowledged that:

“One of the most significant challenges for modern financial regulators and financial services alike is to recognise that we operate within this very human environment.”

He described the argument that “it is the responsibility of the individual to understand the products they are being sold” as becoming increasingly out-dated. In his opinion, the notion of ‘buyer beware’ has become harder to defend when customers are buying complicated financial products. He even went so far as to describe some complex products as “mind-bogglingly complicated financial gambles – almost like spread bets on steroids.”

Behavioural Economics

He also issued a clear statement of support for those whose advice to customers is influenced by behavioural economics:

“I am entirely supportive of these firms, and many others like them, that use behavioural economic insights openly, and honestly, to provide a better customer service – to steer consumer behaviour positively.”

Oxford Risk’s products are informed by behavioural economics to reveal the level of risk customers are willing and able to take with their financial investments. The Oxford Risk Rating is used by many thousands of investors each month to enable their advisors to recommend suitable investments, and our clients to deliver compliant processes and satisfied customers.

To find out more about the speech by Martin Wheatley, Chief Executive, the FCA, at the London School of Economics, London, click here.

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