It is the view of this newspaper that the two FSA papers on the retail distribution review and prudential rules for advisers are deeply flawed.
To link acceptance of one dealing mainly with capital adequacy to a section in the RDR paper dwelling on general financial advisers is therefore deeply flawed many times over.
Director of small firms Stephen Bland has said if the FSA does not get its way in terms of change on prudential regulation then the category of general financial adviser may be temporary.
But many of the premises on which the prudential paper is based are simply wrong.
The attempts to link capital adequacy levels in adviser businesses with misselling make no sense. They appear to have been plucked from thin air.
The paper is a little bit like “Goldilocks and the three bears” except with the “just right” category left out. Too much money in a business indicates misselling managed as business cost but too little shows covert plans to dump liabilities.
We do not think this is the case and are also doubtful of many of the reasons behind the FSA’s concern. Some of the scheme’s problems and those of the PI sector stem from the FSA and ombudsman’s harsh interpretations of the consumer interest – complete with claim-chasers and all.
We agree the system where liabilities can be dumped on the compensation scheme needs reform but the paper misses the point with its obsession with misselling.
As for the paper’s view on the PI market – it does not offer practical solutions that might be offered in a free market but takes a Walter Mitty approach, discussing what an ideal market for the FSA looks like, not for PI businesses looking to make money from it. As with capital adequacy, it links PI and misselling in strange ways.
But we must assume the FSA will act where it has power and that is over capital adequacy. Even here, we do not know the amount – a key fact – so what is the market meant to be agreeing to save this general category, a doubling or a business crippling fivefold increase?
It makes a mockery of the regulator’s claims that these are “industry-led discussion” papers.