Consumer protection on the financial market

2015-05-12 | Reports Consumer

In this report, Finansinspektionen (FI) describes the most prioritised areas in which consumer protection on the financial market needs strengthening. Such areas include tightened rules for advice on financial products, better pension information and measures against closet index funds.

FI regularly conducts analyses of the financial market in order to gauge the greatest risks and problems, both for stability and consumers. The report "Consumer protection on the financial market" is published once a year and highlights the most prioritised areas in which FI finds that consumer protection should be strengthened.

One such area is financial advice. Consumers on the financial market face many difficult decisions, and need factual and objective financial advice or guidance so that they may make a well-founded choice.

In its supervision, FI has seen major deficiencies in how firms manage the conflicts of interest that arise when financial advice is largely financed by commissions. FI therefore finds that current rules do not suffice to provide consumers with sufficiently sound protection, and is of the opinion that a ban on commissions should be introduced. Such a ban should cover all financial advice, irrespective of the type of firm providing the advice.

Another priority area is pension information. Relevant, comprehensible information is essential when comparing different products in order to make carefully considered decisions based on individual circumstances. FI has seen deficiencies in how the firms inform of pension products and has therefore sought to promote an industry agreement so that consumers may gain clearer, more comparable information when transferring their pension investments.

Finally, consumers must also be able to rely on the products they purchase. This requires product descriptions to be accurate and not misleading. FI has seen examples of funds whose objective is to outperform a certain benchmark index, but whose management has not had the conditions necessary to realise that objective. These are known as closet index funds. FI has urged the fund management companies to take measures to address these deficiencies.