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.