Cofunds: FSA legacy rules will create re-reg chaos
The FSA should make re-reg a legacy-disturbing activity
My wife is trying to build a vineyard restaurant and is trying to reconcile the challenges of planning permission, building control, environmental policy, disability rules and licensing laws. Their combination leads to one major law - the one of unintended consequences - more about this later.
For about 10 years, I have been working within a number of industry groups aiming to simplify platform-to-platform re-registration. Two years ago, the biggest platforms and fund manager administrators agreed to adopt the open ISO20022 standard and we asked Tisa to gain industry-wide adoption. The FSA has aimed to help, requiring this within RDR and being positive about the industry initiative. We have ISO agreement on messages and market practice, plus draft service levels and this month we will have a common contract. We have also agreed to create a contract club, TeX, to maintain the contracts cheaply and safely between all the fund managers and platform operators.
Prior to PS11/9 - the platform paper - I invited the FSA to a workshop with the major platforms and fund administrators to discuss legacy disturbance - activities that prompt pre-RDR investments to be new world, that is, lose their commission status under the RDR regime.
We offered simple, clear rules which the FSA told us were in line with its thinking. CP11/26 - treatment of legacy assets - is unclear but apparently tied by the desire to issue guidance, not new policy. The Treasury’s regulated activities order takes precedent. Because re-registration does not involve the potential purchase or sale of a product - an Isa plan not counting as a product in this instance - the FSA has stated that it is not an advised activity.
We wanted re-registered assets to be new world for good, practical reasons. Instead, if your platform uses 150 basis points’ funds with a cash rebate in 2013 (and a unit rebate from 2014?), you have a re-registration problem.
The standard did not envisage three different treatments of the same instrument, so the receiving platform cannot tell what to do with any 150bp fund that it receives - pay trail, rebate cash or units. For businesses expecting to do hundreds of these a day, this is impossible and it can only be detrimental to customers.
The simplest but least likely solution is for the FSA to make re-registration a legacy-disturbing activity. Theoretically, the industry could agree not to use 150bp funds in the advised new world.
This would probably be impossible for many players at this late stage. Therefore, we are trying to get the ISO standards changed. This will take time to agree and more time to build and test.
This punishes firms that have built to the current standard, with unnecessary extra expense and risk. For the industry and investors, it is yet another hurdle and delay caused by regulators apparently not understanding the impact of their fiddling. I cannot wait to see the chaos of delay and indecision over rebates.
Stephen Mohan is managing director of operational services at Cofunds