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FSA looks to ensure SocGen is not repeated at home

The banking world suffered another serious blow last week with the discovery that a rogue trader at Societe Generale, Jerome Kerviel, committed fraud to the tune of £3.7bn.

It was the biggest fraud ever committed in investment banking history and there are reports the FSA are now scrambling to close any loopholes in equity derivatives trading in the UK.

According to reports, FSA chief executive Hector Sants has been calling for investment banks to check their risk management and systems controls.

The regulator is also expected to introduce new guidelines on derivatives trading in the coming weeks to avoid a repeat of the fraud within a UK bank.

And bad news for small firms comes in the form of a 10 to 15 per cent increase in FSA fees for advisers to cover the estimated £18m price tag of its Treating Customers Fairly initiative.

The regulator says the cost will be spread over three years and will cover a 25 per cent increase in staff to implement the TCF assessment process.

An FSA spokesperson says the increase is separate from the 10 per cent fee hike announced early last year.

He says: “The last increase was for the cost of regulation as a whole, not just for TCF, and certainly not just for small firms. This money will be specifically used for implementing TCF and it should be treated as a separate exercise.”

The regulator will begin the crackdown on TCF in March, with Northern Ireland the first area to be targeted.

The FSA says its assessments will test the progress being made by financial advisers, mortgage intermediaries and general insurance brokers towards achieving TCF.

The regulator plans to assess 3,000 small firms this year and aims to cover 11,300 retail intermediaries in the next three years.

Each year the interviews will be followed up with full visits to around a quarter of the firms that raised most concern during the assessment stage.

Argyle Financial director Phil Melville says it is not fair that small firms who are already treating their customers fairly will have to shoulder the cost of the initiative.

He says: “The day we have TCF enforced is nonsense because if we did anything other than treat our customers fairly we’d be out of business. I think the fact that people in our end of the business have to be told to do this is unbelievable.”

The Association of Independent Financial Advisers has also spoken out about TCF, warning the FSA to “consider carefully” the messages it sends to advisers over its implementation.

In a response to FSA chief executive Hector Sants’ comments at last week’s Treasury Select Committee hearing, Aifa says the regulator needs to consider the wider view of what is going on in the market.

Aifa director general Chris Cummings said he agrees with Sants that it would be “a huge disservice to automatically assume that small firms were not treating customers fairly, simply on the basis they did not have a visible process in place”.

Cummings says: “Independent financial advisers strive for client excellence and in doing so ensure they put their clients at the heart of their firm. The vast majority of small firms have the Treating Customers Fairly principle embedded in their culture but may not have the resources of larger firms to provide the required information that is being requested of them.

“The FSA state that TCF is about delivering good outcomes for consumers and not about having ‘tick box’ compliance processes. The FSA must adopt the same process when examining firms.”

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