The system of regulation initiated in the 1990s and then redrawn and largely reinvented in the first years of New Labour is facing its greatest crisis. Not only is its credibility shot for failing to regulate properly but the system it uses to finance itself is also under pressure.
There is a lively debate between the FSA and Aifa about how much all this is costing. Aifa includes the whole range of regulatory fees in its calculations, that is, not just FSA operating costs but also the costs of the FSCS and the ombudsman. On Aifa’s calculations, a medium-sized firm faces a thumping increase of between 90 and 170 per cent.
The FSA uses an example of a firm of 626 appointed reps which it says will face an increase of 17 per cent. But this is only on the part of the fee that goes to pay for the FSA itself.
The fee freeze for 10,000 small firms is welcome but they still face increased FSCS charges. What are described as life and pension firms see no FSCS increase but most of these firms are also regarded as investment firms and their FSCS charges are increasing.
With such a confusing picture, perhaps the best way initially is to argue on principle.
First, no increases should pose a threat that a firm could be forced out of business. We think that when possible capital requirement increases are taken into account, medium-sized adviser firms could well face being forced out of business and that would be disgraceful.
Second, we believe that a product levy would be a better way of protecting financial firms across the piece rather than the current compensation scheme.
No matter how it is drawn, the current system means that big collapses punish the better-run firms.
Third, we have great concerns about the way the FSA has been run, including its obsession with the retail market. We wonder whether the FSA should exist at all in its present form given its failures. Every penny should have to be justified. At a minimum, the National Audit Office should review the FSA budget. We also remain deeply concerned about the FSA’s cash calls being all too easy to make and many if not all advisers footing the bill for the mistakes of others whether those of fellow business people or of the regulators themselves.