View more on these topics

Dangers of FSA regulation by foresight

Be frightened, be very frightened of the FSA, chief executive Hector Sants has declared. Last week, the regulator came out fighting against the recent barrage of criticism and signalled an end to its obsession with principle-based regulation.

It is too early to say whether this is the last throw of the dice from a desperate organisation or the start of the new dawn away from a type of regulation that many advisers always believed would eventually be found out as not being fit for purpose.

“A principle-based approach does not work with individuals who have no principles,” said Sants.

Looking back on the behaviour of the big banks over the last few years, we could not agree more.

From an advice perspective, the greed of the banks can be seen in every scandal that has emerged through the crisis. Whether it is shoddy advice that led investors to pile money into AIG’s enhanced fund, believing it to be as safe as a deposit account, or the large-scale selling of Lehman-backed structured products to investors who may not have been aware of the risk, bank advisers have taken centre stage.

If Sants’ posturing leads to a much needed clampdown on bank advice, it will be hugely positive for the public and the industry. What is not needed is yet more regulatory burdens for IFAs and barriers to consumers getting good advice.

Sants struck a more ominous note when he discussed the challenges and potential dangers of the move to outcome-focused regulation. He explained that a “fundamental change” will see the FSA move from regulation based on observable facts to regulation based on judgements about the future.

This is a road full of potential hazards. Sants himself points out these judgements may not always be correct with hindsight, could potentially stifle innovation and may reduce risk to a level that inhibits economic prosperity.

The danger is that FSA staff may think it is their duty to interfere with how IFA businesses are run, challenge business plans and force changes based not on any evidence but on their own judgement call about the future.

Do enough of the regulator’s staff know enough about running an IFA business to make these calls? Advisers have long complained of the damage of hindsight regulation from the FSA and Financial Ombudsman Service rulings. Judgements made about complex adviser businesses based on an FSA crystal ball could be just as damaging.


The Tory truth

I think I may just have had my Tory moment. The aphorism goes that normal people start off their thinking on the idealist left wing but as we grow older and more cynical, so we all become Tories in the end. I never thought it would happen to me. But two months ago, this column called for the wholesale reform of the FSA and this month that was stated in a Tory report proposal.

Match of the day

Considering more than half of net inflows into funds are headed into fixed-interest sectors at the moment, investors should be aware that the nature of bond funds is undergoing a change and may need to adjust their expectations and approaches.

Standard cuts with-profits values

Standard Life has cut the surrender and transfer values of many of its with-profits plans by 5 to 8 per cent due to poor investment returns.

Eadon calls for holistic equity-release approach

Former Personal Finance Society chief executive Tim Eadon has attacked the sales focus of advisers in the equity-release sector and called for more to offer holistic retirement planning.

Nobody expects the Spanish Inquisition

Paul Fidell, Head of Business Development (Investments), writes about one of the primary challenges for those involved in estate planning. He looks at dealing with investment uncertainty in these low growth, low inflation but still volatile investment conditions. Protection of capital, to leave something for beneficiaries, is a fundamental objective of many people’s plans for […]


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm