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Good and bad rules

It feels like we have been living in the aftermath of the credit crisis forever. The amount of legislation that has been coming out and is met with “here we go again, more fallout from the credit crisis” knows no bounds, it seems.

This is particularly true at a European level where we at the Investment Management Association are currently trying to keep on top of 35 different pieces of legislation. Add to that, regulation and legislation from the FSA and UK Parliament.

Is it right that the response has been to regulate, regulate, regulate? In some cases, yes, it is. In others, it is not. Speaking at a conference in Brussels last week, IMA chief executive Richard Saunders argued that a misplaced analysis of the crisis has led to some of the regulation we are now seeing. He explained that the analysis under-played the role of the banks which created the crisis and over-played the role of hedge funds which did not create the crisis.

No part of the financial services industry is immune from the changes and that includes financial advisers.

At a national level, most significant are obviously the FSA’s RDR proposals and the new regulatory structure which will lead to not one but two regulators taking over from the FSA. How that will work remains to be seen.

Advisers must also keep their eyes on the ball to ensure they are not caught out by EU proposals. That is not to say that all EU legislation is bad, some of it is actually quite promising.

Take the packaged retail investment products initiative, which attempts to level the playing field across all investment products in terms of marketing and disclosure. Leaving aside the odd quibble with some things that have been left out of the proposals, Prips are good for investors and advisers who will be able to better compare different products.

Consumer protection has become all the more important when drafting legislation and that cannot be a bad thing. Advisers need to be able to assure their clients that they are well protected when making investment decisions. But sometimes the consumer protection mantra has been used incorrectly.

The alternative investment fund managers directive is a case in point. It sought to deal with the impact of the Madoff scandal, a fraudulent investment scheme, in which many investors lost money. Rather than trying to address the issue of why investors had ended up in those funds, the tactic was to make depositaries liable for more.

One current proposal with a big impact on investors would be the financial transaction tax. Although pitched as a tax on the City, this is not what the FTT is.

Rather it is a tax on investors and advisers will have to explain to them that they will have to pay yet more tax for the privilege of investing in the markets.

At a time when saving should be encouraged, the FTT sends all the wrong messages.

Back to my earlier point – not all regulation is bad and reform is necessary. It just needs to be well targeted and well thought through.

Mona Patel is head of communications at the Investment Management Association


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