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Divided and conquering: Is regulators’ thinking joined-up?

With an increasingly complex pensions and investment landscape, it can be tough to know exactly who is responsible for what when it comes to regulation.

The FCA’s remit in particular is widening, as it attempts to work through its own Brexit strategy, but also take on responsibility for promoting competition, overseeing consumer credit, and shortly, claims management regulation.

The Bank of England’s Prudential Regulation Authority supervises the likes of banks, insurers, major investment firms and building societies for systemic risk while, The Pensions Regulator, which oversees workplace schemes, has stepped up the amount of noise it makes about its own powers in recent weeks.

The Treasury has its own hand in setting FCA budgets, while compensation duties are shared between The Pensions Ombudsman or Financial Ombudsman Service when firms are still alive and kicking, and the Financial Services Compensation Scheme for those that are no longer trading.

This is all not to mention the European bodies that will also delegate rules.

But is our network of regulators communicating between its parts effectively, and does it have the best structure in place to make sure that nothing slips through the oversight net?

Tying the knots

If you think the current system sounds like a lot of links in the chain, bear in mind that it is actually one less than it would have been before April 2014, when the Office of Fair Trading closed, passing its consumer credit responsibilities to the FCA. It will be two less once the Claims Management Regulator also transitions over to the FCA.

On the surface, the FCA’s current efforts at working with other regulators seem laudable. You can find updated Memorandums of Understanding with the CMR, The Pensions Regulator and FOS from the day the FCA came into being in April 2013.

FCA board minutes from March note that its annual review of the Memorandum of Understanding between the FCA and the PRA was discussed.

The minutes read: “Both [FCA chief executive Andrew] Bailey and [PRA chief executive Sam] Woods agreed that it was working well, with increased cooperation in areas such as cyber-security.”

Ahead of the FCA’s annual public meeting earlier this year, a question was submitted as to whether it would make sense for the FCA and The Pensions Regulator to be combined in some way, so that the regulation of the pensions sector can be more robust.

Though the FCA noted that while the scope of its remit is “a matter for the Government”, it intends to publish a pensions strategy soon which will “provide further clarity about how we work with other regulators and Government.”

Moving forward in financial advice

The Financial Advice Market Review last year can also be seen as an important moment in cross-regulator work.

Of the FCA’s 28 recommendations to improve access to and affordability of advice, the Treasury were responsible for five, The FCA and Treasury were jointly responsible for three, FOS were responsible for four, and the Pensions Regulator was involved in another one, with the reset being left to industry, either separately or in conjunction with regulators, or a new financial advice working group.

FCA updates advisers on FAMR progress

The Government’s attempt to tackle pension liberation scams, Project Bloom, has also brought the FCA together with TPR, with the added weight of the Serious Fraud Office, National Crime Agency and others behind the initiative too.

Gaps in the chain

There are two areas where the interplay does not seem to smooth, however. As Money Marketing has reported, a promised update to the MOU between the FOS and The Pensions Ombudsman – which would dictate how Sipp complaints are dealt with – has not materialised after around two years of asking.

The pair entered a jurisdictional debate over failings at Sipp provider Berkeley Burke as their decisions appeared to clash.

Similarly, FOS decisions over unregulated investment scheme Harlequin appear to conflict with those of the FSCS on the same cases, as a result of FOS ruling based on adjudicator’s judgments of what is fair and reasonable, and the FSCS ruling based on what courts would decide in civil cases.

Adviser view 

Paul Beasley

Managing director

Richmond House Group

Is  the division perfect? No. Is it worth chucking up in the air at great time and expense to redesign?   Maybe not. Is it realistic to think the govt has the bandwidth to even think about that during Brexit?  No.   
Applying the law consistently to decisions across FSCS, FOS and POS should stop variance of approaches in outcomes. I don’t think it’s necessarily a collaboration issue – FSCS and FOS have different legal bases, so one would expect them to come to different decisions sometimes. We are all accountable and FOS should also be accountable to independent scrutiny applying the principles of common law justice.
The weight of regulatory fees are loaded to FSCS, which demonstrates the failure of regulation. It is too easy for the FCA to cover it’s failings with increases in the FSCS levy. Both are ultimately accountable to the Treasury so perhaps the Treasury should approve both budgets independently.

Compliance consultant Adam Samuel says the FSCS remains “completely unmonitored”.

He says: “The FSCS is a law unto itself. It publishes nothing about itself, about its decision making processes.”

However, he says that while the FOS and FSCS’ judgment basis may differ, the outcomes won’t diverge on too many occasions.

He says: “There is this assumption that fairness and law are different, but they aren’t different 95 per cent of the time.”

FOS and Pensions Ombudsman at odds over new Sipp complaints deal

Personal Investment Management & Financial Advice Association strategic adviser Chris Hannant says: “It’s a patchwork, so we are not going to get something coherent. Having said that, you would ask the question of whether the hassle and all the rest of it of trying to rip it all up and make if perfectly joined at the edges, that organisational disruption, is worth it.”

“Who’s going to pay for that? We all know who’s going to pay for that: financial services firms.”

One area Samuel says regulators could work together on is a liability structure for Sipp providers when they allow unsuitable investments to run through them, and is pleased that the FCA and FOS do appear to be discussing these issues already.

Adviser view 

Yvonne Goodwin


Yvonne Goodwin Wealth Management 

I don’t think there’s such a big disconnect between the FCA and FOS. If the adviser is acting in the client’s best interests, trying their very best to do what is suitable given all the information at the time, then the adviser, in the event of a claim sometime further down the line, can produce those records.

Its your own moral code as well as the FCA rules. If you didn’t have any conflicts of interests and disclosed everything in what you recommended and the FOS finds against you then so be it, but if you were doing what was right for the client then I haven’t had a problem with various FOS judgments I have seen.

Who holds the power?

Ultimately, the FCA holds sway over what happens at the FSCS, given it sets out the parameters of its fund.

When Money Marketing last met with FSCS chief executive Mark Neale in June, he reiterated that, while the FCA and FSCS had been in discussions, any decision on how the FSCS is funded would be up to the FCA after its review, not the FSCS. (Though, speaking in a personal capacity, he has always expressed sympathy with the idea that higher-risk firms should pay more into the compensation pot.)

FCA sets out thinking on FSCS funding review

But above that, is the Treasury and MPs that decide the remit the FCA itself acts under. Fines the FCA levies are funneled back to the Treasury, and concerns have been raised about secondments between the two before and the consequences of that relationship for the independence of the regulator.

But with the extra responsibilities the FCA has taken on, the question then become more whether the FCA is up to the workload it now has without kicking at least some off on to other shoulders.

The Treasury Select Committee of MPs last year called for an “independent enforcement function” to be separated from the FCA and to sit between itself and the FCA. The goal was to stop an “unfair” situation where the FCA supervised and applied regulatory rules, but also then prosecuted them.

Adviser trade body Libertatem thinks that the solution to the regulatory puzzle is for a separate agency to be set up, the Professional Advisers Regulator, that would be solely dedicated to the advice market.

Libertatem says: “We believe that a dedicated advisers’ regulator would do a better job than the FCA, and at a lower cost to the industry. By reducing these costs, advisers can, in turn, reduce their fees (should they wish to do so) making their services affordable to more consumers. In addition, by cutting back on bureaucracy, advisers will have more time to advise more clients.”

Expert view

Esrar Moitra

We have had ‘twin peaks’ regulation for a while, splitting conduct and prudential with the FCA and PRA, but that hasn’t prevented crises. The argument is that when you had just one regulator, you might have a visibility of the prudential aspect that can bring understanding on the conduct of business piece. If you are a prudential regulator, looking at systemic risk in a bank, there’s a pressure possibly to turn a blind eye to conduct transgression now they’ve seen how firms need to maintain margins and capital.

The FOS needs to be separate, because it’s really not a regulator, and the FSCS needs to be there underpinning confidence. It’s complicated because the Treasury will issue its own consultations on how it will implement new regulations.

Esrar Moitra is consulting director at Optima Regulatory Strategies 

You can hear from senior staff at the FCA and regulatory experts at the Money Marketing Interactive conference, which is being held at the Majestic Hotel in Harrogate on 14 September. To join over 100 advisers and register to secure your free place, click here.



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There are 9 comments at the moment, we would love to hear your opinion too.

  1. How many people would disagree that the FCA plainly isn’t up to the workload already on its plate? Not that many and certainly not those of us who are reeling from our latest FSCS levy bills.

  2. The FCA has become the dumping ground for the treasury. They now regulate 60K firm across dozens of sectors, with more likely coming their way. Then add to this Brexit and an increasing EU legislative mandate which needs to be written into FSMA; and this article says they will be handed more!

    • My first response to your quote; Dumping ground for the treasury is, Boo Hoo….

      Chaucer, satirised friars and the church (FCA in this case) for their continuing sermonising of endless work and vows of poverty, whilst living and working very comfortably, and the story of the summoners clearly reflects the corruption within……

      Need you be reminded of the budgets they command ? and absolute power corrupts absolutely !

      It seems history has taught us very little from the 14 century !

      • I wasn’t trying to defend the regulator I was stating that a continually increasing mandate is unsustainable and eventually something will break.

        I don’t need to be reminded of anything.

        Where does your need to be so combative stem from?

        • Where does the need to be so combative come from …….excellent question !

          I abhor bullies first and foremost, and in the FCA’s case corporate bullies which is not physical in the true sense of the word. And one; like the FCA cannot seek to punish/bully a whole community financially, verbally or by way of sanctions for the wrong doing of a few…. (its a crime under the Geneva convention)

          As an innocent party I (i mean collectively) have been de-bagged and held down over the metaphorical regulatory desk by the FCA (if you will)it seems far to often, for personal pleasure, financial and corporate gain.

          To this end, the butterfly effect of these, is the results are passed on and felt by, again, the innocent my/our clients !

          Bet you are glad you asked that now ?

  3. Libertatem raised this issue just a few weeks back while proposing PAR. It certainly makes sense going forward to decentralise regulation, putting people in place that know what they are doing and what is required, instead of continually attempting to fit square pegs into round holes, thereby creating problems instead of solving them.

    • I very much doubt Liberatem (sp?) carry any weight to make such fundamental changes to regulation.

      Besides, as an Idea the cost and time taken to create a new advice regulator with its own mandate, objectives, rules and then integrate it into other regulation would be overly prohibitive.

      Many big firms would then be regulated by 4 different organisations and they will stop that before it starts. They have the requisite weight.

  4. Why would regulators have joined up thinking when the government doesn’t even know what that means?

  5. The article reads like a bit of a love fest between all the regulators and the treasury.

    All tied up in a neat little bow, accountability when and where it suits, endless supply of money, for the regulators, by the clients of the industry it regulates, and the treasury by the fines the regulators collect, sounds kind of medieval do you not think ! those familiar to Chaucer and the Summoners.

    Do I have any sympathy for the work load and complexities in the various regulators or the people who work there, absolutely not !

    I am pretty sure they don,t either, lets face it its a bureaucratic gravy train, I am sure the general work force with these operations are treated the same way as we are, we are but pond life, working to purify the existence they live in.

    Whats the end game for this treasury/regulator love in ?…. increase the work, “do it badly and inefficiently”, increase the revenue, “the outcome from the first point should secure the second”

    One very real threat and certainty to all this is, our clients will pay dearly, it will be increase after increase after increase, levy after levy after levy, until the oil runs dry and piston rings fail.

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