As the Government consults on its restructure of financial services regulation and with the coalition still seemingly in listening mode, now is the perfect time to lobby for improvements.
This may be the only occasion in the foreseeable future when we have a chance to step back, take a look at the way regulation is working and suggest alternatives.
The FSA has five statutory objectives – market confidence, public awareness, financial stability, consumer protection and reduction of financial crime.
One of the big criticisms of the FSA on the retail distribution review and other retail financial services matters has been a perceived lack of concern about a fall in the number in individuals getting access to financial advice and financial products.
There is worry in the IFA sector and wider financial services industry that the RDR will lead to fewer people being able to access advice and therefore fewer people saving and protecting themselves and their families. At the coalface of the industry and with their interests aligned with consumers, IFAs have been the most vocal in their concerns about the damage this policy could do to savers. They are not alone. The likes of Peter Hargreaves, interviewed in this issue of Money Marketing, and life and pension providers have also been expressing growing concerns.
Money Marketing this week launches a campaign, Pave The Way To Save, calling on the new regulator to have a specific statutory objective to “have regard” for increasing savings rates and levels of protection, a move that we believe will create a more balanced and constructive approach to regulation.
The Treasury is consulting on the role and function of the CPMA. The new regulator will have a primary objective of ensuring confidence in financial services and markets but will also have a set of statutory secondary considerations or “have regards” to take into account when pursuing this objective.
The Treasury uses the list of FSA principles as examples of secondary objectives but asks if the new regulator should consider any other public interest issues. Increasing saving levels is the type of public interest issue that should be of concern to the Government.
Such a move would align itself with Prime Minster David Cameron’s vision of a “big society” that takes on more responsibility and help deal with changing demographics.
Nest and auto-enrolment should improve the picture but a regulator charged with helping in the battle to get people to take responsibility for their own financial affairs has got to be a step in the right direction.
For many people, dealing with debt is a more pressing concern and any move must be made in tandem with a solid financial education programme. It looks like the Consumer Financial Education Body is moving in the right direction, helped by the huge sums of money the industry will be paying to fund it.
Cynics may say the Government has no desire to increase savings levels due to the effect it could have on spending. If that is the Government’s agenda, then it should be made public.
A new statutory objective on increasing savings and protection would not be a panacea and there are many other arguments to be had, for instance on scrutiny of the new regulator’s costs, but we believe it would go a long way to creating a healthier regulatory environment that could benefit millions of people.
Raise public awareness
Protection Review co-chairman Peter Le Beau
Protection Review supports this idea as the state will not provide the safety net that many families assume it will.
For too long, those in charge have over-regulated the best while allowing some of the worst practices to prosper. Focusing regulation on what people need to know about financial services should serve consumers’ best interests.
One of the FSA’s key objectives is to promote public awareness and understanding of the financial system. It is a sad fact that many people are not aware of the risks they have taken on by default or the range of value solutions the industry can offer to manage those risks.
Protection Review surveys have shown that the public and IFAs are hungry for more information and the FSA has the clout to help ensure that can happen.
Protection Review will give its help and support to any campaign that looks to increase awareness among the public.
Responsibility to close the gap
Aifa policy director Andrew Strange
The debate on regulatory architecture is the most important regulatory issue our profession has faced in many years. Aspects such as the twin peaks’ approach are decided but there are many wider issues to debate.
I whole-heartedly agree the starting point for regulatory reform must be the purpose of regulation. Regulating second-tier issues at point of sale has, and will continue to result in a reduction in take-up of advice.
The priority should be to produce a regulatory regime that encourages more consumer involvement, builds on the Government’s rhetoric of consumer responsibility and delivers a robust and innovative sector.
We must do more to reduce the savings and protection gap and regulation has a role to play. One option is for the regulator to have a statutory duty to reduce the gap. The advantage would be to make it explicit that the regulator must put this objective at the heart of all it does and not introduce reforms that would reduce access to advice. We could also increase the powers of the board and statutory panels to provide a stronger check and balance in the debate.
Aifa is working extensively with politicians to deliver a better outcome for consumers and advisers. We will also be publishing a full report which will contribute to the debate.