FSA warns of troubled 2008

by Gill Montia

Story link: FSA warns of troubled 2008

The Financial Services Authority (FSA) has warned that “a significant minority” of people could find themselves in financial trouble in 2008, because of high levels of borrowing.

In its Financial Risk Outlook report the authority expresses concerns that difficult market conditions are putting the business models of some financial service providers under strain.

It expects these pressures to result in an increase the amount of financial crime being uncovered, which could result in a loss of confidence in financial regulators.

The report states: “Market participants and consumers may lose confidence in financial institutions and in the authorities’ ability to safeguard the financial system.”

The FSA has stressed that the Outlook report aims to identify risks rather than predict events.

Callum McCarthy, the authority’s chairman says: “These are not firm predictions about what we think will actually happen, but are a prudent attempt to highlight the risks that could impact consumers and firms in a less benign economy.”

Adding: “Firms and consumers need to recognise there are both short and long-term risks and should think about the implications.”

Last week, the FSA was itself criticised by a select committee of MPs, for failing to spot the “reckless” nature of Northern Rock’s business plan.

The Treasury Committee report has accused the FSA of failing to “stress-test” Northern Rock’s business model sufficiently, stating that in this particular case, financial stability safeguards had “failed abysmally”.