* FSA might ban some financial products, set price caps
* Says may warn against life settlement, structured products
* Aims to reduce, stop large scale market problems
(Adds lawyer, ABI comment)
By Kirstin Ridley
LONDON, Jan 25 (Reuters) - Britain's financial services regulator might ban some products, warn investors away from others and set price caps in a radical overhaul of its policies as part of a global crackdown on mis-selling to consumers.
In a discussion document published on Tuesday, the Financial Services Authority (FSA) suggested intervening in areas such as pre-approving some products, mandating product features, preventing non-advised sales, issuing consumer and industry warnings and setting advisers further competence requirements.
It singled out areas such as the traded life settlement market, which has been hit by the Keydata scandal, some of the more complex structured products and leveraged exchange-traded funds as areas that might be deemed "generally unsuitable" for the mainstream retail market.
FSA Chairman Adair Turner has repeatedly said he wants to break the cycle in Britain of a mis-selling scandal every few years in financial products such as pensions, as regulators across the world play catch-up in consumer protection.
The United States has already put in place a new consumer watchdog, while the European Union is also looking to beef up safeguards. So far, however, regulators have stopped short of introducing direct product regulation for fear, in part, of stunting innovation and driving up costs.
"We still want to see innovation, but only where it is in the interests of consumers," the FSA said.
"It is not our intention to create a 'zero failure' regime where consumer detriment is impossible -- this is likely to be unattainable in practice and would require a huge increase in our resources -- but we aim to reduce the frequency with which large-scale market problems occur and, if possible, to stop them from happening at all."
TOO COSTLY
Some lawyers dismissed the suggestion that the FSA might unilaterally be able to introduce new rules, as this is incompatible with EU directives.
"All it can hope to do is to influence the EU debate ... and the current EU stance is largely against product legislation," noted Simon Morris of UK law firm CMS Cameron McKenna.
"Some consumer loss from rule breaches is inevitable and where the firm does not offer recompense this is picked up by the Ombudsman and compensation schemes," Morris added.
Maggie Craig, acting director general at the Association of British Insurers (ABI), warned that heavy regulation of both the sales process and product design could make it too costly for firms to offer some consumer products.
"The focus should be on where problems exist and take into account that many markets already work well," Craig said.
Since the economic crisis the FSA has switched tack from a so-called "light touch" regime -- blamed by politicians for failing to spot and halt the excessive risk-taking that helped spawn the crisis -- to a more intrusive approach.
FSA Chief Executive Hector Sants told Reuters in December the new Consumer Protection and Markets Authority (CPMA), which will incorporate key elements of the FSA from 2012, will need more powers of intervention and disclosure, such as banning products, if it is to fulfil its goals.
The government has promised the CPMA will be a consumer champion armed with a new suite of powers, which will enable it to be more proactive and transparent in preventing consumer losses. It plans to publish a second consultation document in the first quarter. (Additional reporting by Huw Jones; Editing by Greg Mahlich and David Holmes)