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FCA: No genuine examples of retrospective regulation

The FCA says a call for evidence on retrospective regulation has produced no genuine examples of where it has applied its rules retrospectively.

In August, the regulator asked firms to send it examples of retrospective regulation. It defines this as the application of “a more demanding standard or interpretation of the rules after the event, with the benefit of hindsight”.

In a response published today, the FCA says it received 36 responses, none of which reflected retrospection under its definition.

However, the FCA says many of the responses “raised wider questions about regulatory behaviour”.

It says most examples referred to issues which have persisted in the market for some time before the regulator took action.

The FCA says: “The concern raised was that previous inaction suggested either approval or regulatory indifference, and firms had taken this as a sign that they could continue, for example, selling certain products.

“Some respondents therefore felt that when the regulator had turned its attention to a particular situation it was, in effect, changing its mind.”

Examples included pensions misselling, payment protection insurance misselling and Arch cru.

The regulator says: “This criticism presents a challenge for the FCA. The regulator’s aim is to be forward-looking.

“Sometimes, the fact that there has been a problem with advice or selling practices may not become clear until some time after the event and it is only at that point that action can be taken. That may require a review of past business.

“While we do not believe that this is an example of retrospection, as we have defined it, we do appreciate the concerns of industry and the challenge that past business reviews pose for them.”

The FCA adds that the number of responses it received suggests the issue “is one of perception”.

It says it expects this perception to change over time given its aim to be more forward-looking than its predecessor the FSA.



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There are 20 comments at the moment, we would love to hear your opinion too.

  1. E L Wisty (an only twin) 22nd January 2015 at 2:57 pm

    Well, it would say that, wouldn’t it!

  2. Given that virtually everything that went wrong with ArchCru was down to misbehaviour on the part of its directors, about which intermediaries couldn’t possibly have known but which, many would argue, the regulator certainly should, it’s a bit rich for the FCA now to be citing the sale of ArchCru funds and products as a breach of long standing regulatory principles.

    Surely, product providers and fund managers are required to submit to the regulator on a regular basis some sort of RMAR’s? Assuming they are, one may only assume that the regulator doesn’t actually look at, let alone analyse, any of their content, hence the motorway pile-ups continue with the regulator blaming everyone and anyone else for its own supervisory failures. Asleep at the wheel is, I believe, a description often used. That and looking in the wrong direction at the wrong things and beating up the little guys over fiddling minutiae.

  3. I do appreciate that the FCA has taken this issue seriously.
    The concerns of retrospective regulation are of course almost impossible to prove as the regulator only gives guide lines which can be interpreted in different ways at different times.
    However they do seem to appreciate that there is an issue & hopefully will take steps to address this.

  4. I would have thought the Arch Cru situation is a typical example of ‘a more demanding standard or interpretation of the rules after the event, with the benefit of hindsight’. The regulator is now saying those who recommended Arch Cru, should have carried out sufficient due diligence and ‘looked under the bonnet’. I know the regulator will say the product was advised to some clients whose risk rating was not matched to the product, but not matched with the ‘benefit of hindsight’.

  5. And so we continue with the regulator never listening, never learning and never responsible, despite a budget of £0.5bn a year. I read this document as it came through on Regulation Round Up and I felt it was disingenuous to say the least.

    How many years do you suppose the FCA will last before it makes such a mess that they have to change their name again. I predict 5.

    It’s time they listened, put their hands up to past errors and started to work with the industry rather than against it.

  6. The regulated have work to do, the torrent of new paperwork and consultations hasn’t slowed so why would they raise their heads and invite scrutiny.

    When regulators call you and say “You have serious issues” after you appear in a newspaper it focuses your mind.

  7. Retrospective regulation has been applied to unregulated SRB cases where there is to be a change in the underlying tenancy post regulation.

  8. E L Wisty (an only twin) & Julian Stevens – I don’t suppose either of you were one of the very few that responded to the FCA’s request for examples of when they had acted retrospectively?

    I expect that the number of negative comments here will far outnumber the number that actually responded and provided examples….

  9. Well they must have a really perverse definition of ‘retrospective’ then because they fined a firm I am connected with high 6 figures for “offences” that two years previously had been rated as very good, in writing, by the FSA. I do not imagine many people accused of doing wrong things get to call for and review the evidence themselves, oh except the police, politicians and NHS – that loks like everybody except those of us in the real world trying to earn a living (for their regulators 😉

  10. Is it perception only? Possibly but if that is the case the FCA should be very worried. The advice gap (that is clearly there – ill explain later) is getting wider, the numbers of advisers are getting squeezed out by spiraling costs especially compensation and that leads to a smaller advisory sector paying larger and larger fees, mostly for past mistakes of regulation (Arch Cru/Keydata/etc) not one of which I ever recommended but are a large bill to me and ultimately my clients. That has driven up my costs which has exasperated the cost cycle which forces to widen the advice gap even more. Am I making sense because it strikes me nobody outside the advice sector understand this as they dont speak to ordinary people wanting advice?. The end game is that the regulatory system is in danger of destroying itself and advisory sector if it continues on its current path.

    Don’t get me wrong I like RDR and the smaller advisory market. Less fish in a large pond. However I am concerned about the people I have to turn away (the advice gap) because my initial fees are off putting. My starting point is £400 to collect info and pass an opinion. It goes up from there with reports, advice, etc.

    Some people are put off by this I can see it in their faces. However I have a business to run and I have other clients waiting to be seen as there is little to no competition that I come across. This initial fee used to be covered by cross subsidy with some clients and services to others – I always explained it and clients never complained – but that is no longer allowed. I cannot do pro bono work as that is too dangerous and my PI insurers head would explode.

    No sadly we have had to be become elitist and deal with the upper crust of society – not in wealth terms but in financial knowledge terms. If they understand the value of advice then they pay and don’t mind. Everyone else gets DIY, Money advice service or pension guidance

    Hardly a regulatory success …….

  11. Is it me, or is this just a bit of a twist on the “no true Scotsman fallacy”…?

  12. E L Wisty (an only twin) 22nd January 2015 at 4:11 pm

    Unfortunately, it’s the FCA that owns the football and acts as referee. What I find offensive is that they go to the (presumably not inconsiderable) expense of commissioning this report, when it is clear that there was only ever going to be one answer.

    However, the CF Arch cru was not about retrospective legislation, but solely about the FSA and Capita’s failure of due diligence in authorising Arch FP and then needing to find a fall guy to take the blame.

    How can trust survive in such an environment?

  13. The pension review springs to mind although that was not FSA/FCA who phonixed from the PIA

  14. “That was another regulator” – Male bovine excrement

  15. FIMBRA, PIA, FSA, FCA ~ same outfit, just different names. As suggested above, it’s easy to issue guidance and then accuse those subject to it of having misinterpreted it. The goalposts set down by the regulator are infinitely moveable. ‘Twas ever thus and will forever be so.

    BTW, Greg Heath ~ didn’t you mean exacerbated rather than exasperated?

  16. I the time of writing I have just received notice that a clients endowment has achieved full maturity value ahead of its maturity date August 2018. The client had received the usual regulatory imposed shortfall warnings but had the good sense to stay with the plan. The endowment review was retrospective. It labelled products as mis-sold retrospectively ignoring factors in place at the time of the sale, that made the endowment appropriate for the client and factors other than the sale circumstances:

    a)The abolition of MIRAS.
    b)The reduction in the inflation rate and the resulting reduction in equity returns
    c)Stock market falls, which have had a direct impact on existing fund values and projection targets.
    d)Complaint lobbying by consumer associations (who have in the past advocated endowment repayment).
    e)Over ambitious regulatory projections .
    f) A shortfall may not be quantified until maturity date. What happens when the market recovers from recent falls?
    g)Regulatory insistence on the use of LAUTRO growth rates rather than the more accurate “Own Company Charges”.

  17. Sorry FCA- I think you are often very sensible with your ideas and guidance but everyone knows that is just Symantics for both you and the FOS. Your interpretation of your rules constantly changes and yet you then quote back to a Principle that has been around for ages- as if you always thought that way- you didn’t and anyone who has been around as long as I have knows that. Cant complain too loud as I was too busy to respond but I suspect that most didn’t as they are in process of being fined or under skilled persons process and don’t want any more trouble. What confuses me is why the FCA feels it has to defend itself and why it doesn’t work more closely with FOS who are constantly evolving their views- which they often get blamed for. Anyway opportunity passed so time to move on- just with a little bit less respect for both organisations,

  18. This article highlights the paradox of the FCA’s regulatory stance. They claim to be forward looking but issue regulation based on reviews of past business.

    The FCA needs to take responsibility for products covered by the FSCS. If a product is going to be available through regulated channels and covered by the FSCS should it fail then the FCA needs to step up to the plate and say “we need to authorise this before it is rolled out to the public”. Once it is authorised it should be required to adhere to specific requirements stated by the FCA, for example – if it’s a fund reporting of charges, management, invested assets etc etc, if it’s a product (think PPI) – standardised client disclaimers must be used etc. Should any of these rules be broken it is no longer a product covered by the FSCS and therefore shouldn’t be recommended by regulated advisers. The problem is that this would require the FCA taking responsibility for something rather than dancing around issues then claiming foul when enough consumer “champions” jump on a bandwagon.

    Well……………that rant got a little out of hand, i certainly didn’t mean for it to be so long. Maybe my view of the regulators role is a bit too simplistic but i’m only a fool who deals directly with the public and don’t have the luxury of an ivory tower so feel free to disagree.

  19. Of course, issues such as this are, to an extent, subject to subjective interpretation and, if the FCA declares that there are genuine examples of retrospective regulation, that is the view that shall prevail, regardless of what anyone else may think or have to say about it, not to mention citing examples that definitely ARE genuine (as indeed has Simon Mansell). That’s what we have to put up with from a regulator unanswerable to any outside body except the Treasury and, even when they are called to task from that source over something such as the botched review of closed book products, all concerned get off scot free.

  20. Some horses wear ‘blinkers’ for a reason…

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