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FSA can’t pay regulatory divi

It is impossible for the FSA to implement regulatory dividends for IFA firms under its current fee system, says Lansons regulatory consulting director Richard Hobbs.

Last month, the Personal Finance Society renewed its calls for regulatory dividends to reward firms that implement higher professional standards.

But Hobbs says rewarding firms with lower regulatory fees goes against the levy system, which is designed to share losses among a big group.

He says: “Regulatory dividends are a nice idea but one incapable of any practical implementation. The concept of a levy is to neutralise loss around a market.

“It is the nature of neutralisation that you are sharing a loss among a large number of people who by and large did not contribute to it.”

Hobbs adds that a levy scheme based on a system where firms pay more if they are more likely to fail may lead to volatility as those firms could be the least likely to pay.

Chartered Insurance Institute director of policy and public affairs David Thomson suggests dividends could go bey-ond fees and could be in the form of lighter-touch regulatory visits for chartered firms.

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There are 2 comments at the moment, we would love to hear your opinion too.

  1. I disagree. Whilst it would clearly be impractical for the FSA to assess an appropriate level of levies for each and every firm on an individual basis, I don’t see why it would be impractical to create three or four levy tiers. The criteria would include such things as qualifications, complaints history, types of business transacted and KPI ratings. Thus, a chartered FA with a clean complaints record undertaking no or hardly any high risk business and top KPI ratings for all its advisers would be in the lowest cost bracket (which seems fair and reasonable). Advisers with only basic qualifications, a poor complaints record, transacting a lot of (potentially) high risk business and poor KPI ratings would be in the highest cost bracket. On the strength of all the hard data accumulated over many years, most of the banks would, as they should, end up in the highest levy bracket whilst most IFA’s would end up in the lowest levy bracket. Is that not fair and reasonable?

    I also don’t see why the levies are flat as opposed to being calculated as a percentage of turnover, subject to a minimum.

    Of course, such a system couldn’t be implemented overnight, as the regulatory bodies would be unable to predict their likely income for the coming year. But it could be phased in over two or three years, with the levy bands adjusted each year according to how the overall regulatory take was affected by the number of advisers paying either more or less than they would do under the current system.

    Referring again to the Statutory Code of Practice For Regulators, such a system would be fair and proportionate, as it is presently manifestly not.

    My campaign to hold the FSA to account over its flagrant disregard for the Code, by the way, remains ongoing.

  2. My thoughts on the “regulatory dividend” was that it would be a intangibel benefit i.e. lower supervisory scrutiny, reduced Handbooks requirements i.e. if your advisers meet x standard qualification then COBS y.z do not apply.

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