Although much discussion continues about the activities of the FSA, it
appears that some people are still slow to understand how financial
services will be regulated in the near future.
When the UK signed the Maastricht agreement which codified many details of
the single European market, it also passed many powers of government to the
Importantly, it allowed for subsequent incremental legislation to follow in
Thus, we now see our own regulator, the FSA, being usurped within one year
of its own existence.
The FSA publicly acknowledged recently that all UK mortgages could be
regulated by the European Commission as soon as 2006 – barely two years
from when the FSA takes over from the MCCB.
Mortgage lenders have recently flagged their alarm that flexible mortgages
– which can save borrowers thousands of pounds – may be regulated out of
existence by the EU.
“Execution-only” brokers are facing genuine extinction of their business if
the recent directive from the EU is not substantially amended – and the
signs are it will not be.
Aifa's Paul Smee quite reasonably acclaims his success in dissuading the
FSA to continue its defined-payment system plan.
However, Mr Smee was given a couple of extra aces to his hand when, within
weeks of the original idea, a proposed directive from Europe announced that
intermediaries could be both independent and paid through commission.
The FSA would have known at once that its idea was dead in the water. It
has backed down with good grace but also with good reason.
By the same token, it was a pointless exercise for IFAs to complain to the
FSA about the proposal for depolarisation.
Quite simply, the concept does not exist in Europe and the FSA had to move
the rules here towards those of a single market. It had a duty to the EU to
scrap polarisation and it is duly doing so.
Ron Sandler's proposals for a simplified range of financial products which
could be bought without advice, which were warmly welcomed by the FSA, are
already under threat from the European authorities, as Sandler himself
As I see the situation, they are unlikely to be allowed to be brought to
market as Mr Sandler has intended.
To understand this conflict, one must appreciate the relative
sophistication of the UK market and its investing public compared with
markets in many other European countries, particularly those just about to
join the EU.
In many of these countries, there is little public experience of investment
equities, pension funding, flexible mortgages, buy to let, life insurance,
Yet these people will need to be given the same protection as every other
citizen in an EU state, including Britain.
And so, when IFAs want to consider future regulation of their business,
they should look to Brussels rather than Canary Wharf. The FSA has a very
limited lifespan, unless it moves towards being a local monitoring branch
for the EU. Its own rules are already subject to EU legislation and, as
that legislation is increased, codified and drafted towards the
pan-European market, so its own influence will wane.
The political ramifications of EU powers are beyond the scope of this
letter but the intriguing point for Euro-sceptic IFAs (such as I) is that
many of the new rules will tend to favour advised transactions rather than
caveat emptor purchases of financial products. The IFA is likely to prosper
from future laws.
While I do believe that Messrs Davies, Sandler and others are keen to widen
the actively buying market rather than what is currently mainly an
adviser-led market, I think they will largely be frustrated by EU
legislation that seeks to protect savers and borrowers from themselves.
We will shortly be regulated from a centralised Brussels authority.
Democratic and in touch? Unlikely. Good for IFA business? Quite probably.
Galling for those individuals in regulation who like to consider themselves
as important men? Most definitely.
Christopher Charles Financial Services,