FSA reveals traffic light warning system
As the FSA (Financial Services Authority) continues to reinvent the wheel, i.e. the UK regulatory system, a rather bizarre traffic light warning system has been revealed. The FSA wants to introduce a colour-coded system, very similar to the one in UK supermarkets, which would see the colour on a financial package reflect its perceived risk element. Mortgages, pensions, insurances and other investment products would become part of this particular traffic light system but there are significant flaws.
Even though you may expect a 100% plus mortgage to reflect red for danger, and a potential 50% mortgage to reflect green for low-risk, this would depend entirely upon the person in questions individual financial status. If you have more than enough money to take out a 100% plus mortgage then in all honesty the risk to you would be fairly small, but if a 50% mortgage was stretching your financial means then the lower mortgage would offer more risk. It is crazy to suggest that a traffic light system could easily be introduced into the UK financial sector and play the part that it is meant to.
There is a grave danger of the UK government trying to simplify the regulatory system too much and pacify critics of its past performance. This is why we have qualifications in the financial services industry, this is why we have an overall regulatory framework which includes the Bank of England, FSA and the Treasury and this is a system which aside from the credit crunch has on the whole performed well in the past. Do we really need to knock down and rebuild the system from scratch?
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