The FSA has recently set out plans to treble fines to adviser firms, even if it forces companies into bankruptcy.
Clearly, if individuals within a firm are found to be deliberately at fault, then severe consequences should ensue to drive rogue individuals from our profession. However, the FSA’s new strategy could equally lead to unintended consequences on creditors, staff who work in affected firms and, not least, the consumers being serviced by the firm.
Instead of rebuilding consumer confidence with balanced messages and focusing on the positives which two decades of regulation has brought with it, the FSA seem to prefer scare tactics and the promotion of failings.
It is possible that old habits are hard to change. It always seemed strange that product provider salesforces of the past, which were found wanting in areas of training, documentation or systems and controls, were fined significant sums and forced to spend significantly greater sums of money on remedial action – even where the failings were not proven to have caused consumer detriment. Who ultimately paid the cost – the policyholders. After all, the regulator had to protect them against possible financial detriment by causing actual financial cost. It is certainly a strange system to operate from a TCF perspective.
The FSA culture and PR seem to be misaligned with their own objectives and misplaced regarding the best interests of consumers and the industry.
Better supervision, monitoring and testing is the key to influence behaviours, improve professionalism and increase consumer confidence – not the threat of bigger fines.
Instead of concentrating on harsher penalties, the regulator may find it more beneficial to look at their own role and better understand why rule breaches are being committed. Aggressive public declarations cannot possibly help build consumer confidence as it implies there are major issues around every corner. This can only lead to further distrust and concern.
Furthermore, if the regulator forces businesses into bankruptcy, this could add to further unemployment in the sector. Of course, where deliberate or reckless wrong-doing takes place, individuals must be dealt with accordingly. In the case of sole traders, the firm is the indiv-idual and fines are likely to lead to bankruptcy, with fines perhaps passed on to the FSCS.
Being overly punitive rather than properly understanding the root cause and then implementing more effective and permanent solutions will not help the industry move forward.
Keith Richards distribution and development director for Tenet group