2015 was the year the Government cast a looming shadow over the FCA, from dictating the regulator’s workload to ousting its senior management.
The controlling hand of Government in regulatory affairs was made abundantly clear in July when it was announced that FCA chief executive Martin Wheatley would be stepping down. A statement from Chancellor George Osborne thanked Wheatley for his tenure but added: “The Government believes different leadership is required to build on those foundations and take the organisation to the next stage of its development.”
Independent regulatory consultant Richard Hobbs says: “The Government has fallen very much out of love with its regulator, and as a result there are going to be significant changes. It seems like the banking lobby is finally being listened to.”
The Government also set the tone on the FCA’s priorities. Following the rollout of pension freedoms in April, the FCA was charged with putting in place a framework to govern Osborne’s flagship reforms.
In July, Money Marketing revealed the types of pension freedoms complaints consumers were bringing to the Financial Ombudsman Service. Complaints mainly centred around the way providers were allowing consumers to access pension freedoms, poor service and delays and frustrations over the requirement to take advice for safeguarded benefits worth more than £30,000.
But the dominant issue has been insistent clients. Advisers have been concerned about future liabilities should they process a transfer despite advice not to do so, and the FCA was forced to issue guidance on dealing with insistent clients in June.
But law firm DWF partner Harriet Quiney is not convinced the insistent clients challenge has been resolved.
She says: “There is more clarity than there was but a lot of people are still concerned about what to do if an insistent client approaches them. A lot of networks have taken the view they will not advise insistent clients because it’s just too risky. They don’t feel confident that if they give appropriate advice, but ultimately do what the client wants, that they will be protected in the long run.”
The disquiet over insistent clients and pension transfers has also extended beyond the advice market to Sipp providers. In May, Money Marketing reported how Sipp providers were coming under increasing pressure to intervene on pension transfer advice, and block transfers out of defined benefit schemes that are not in clients’ best interests. The contested case of Berkeley Burke, in which the Financial Ombudsman Service found the provider had failed to carry out adequate due diligence on an unregulated collective investment scheme, continues to be reviewed by the FOS.
Quiney says: “There is a big concern around how the FOS seems to be forcing obligations on Sipp providers. For a Sipp provider to be told they should have told a client an investment was unsuitable is frankly ridiculous.”
EY senior adviser Malcolm Kerr says: “2015 revealed a major challenge for the regulator: ‘how do you regulate the unregulated?’ For example, Sipps, where the data is around the wrapper not the unregulated product. Or pension freedom scams. Or, dare I say it, leveraged film finance investments.
“Add these issues to the concerns raised by the wealth management thematic review, and many other ongoing inquiries, and 2016 will see lights burning in the windows late at night at the FCA.”
Expert view: Richard Hobbs
Despite the fact there has not been a change of Prime Minister or Chancellor, we have had a change of Government at the general election. It became clear it was the Lib Dems who were driving a lot of financial services public policy, such as banker bashing, and it’s people like Vince Cable who were keeping Martin Wheatley in a job.
Our politicians play a rather sophisticated game. They create arm’s length regulators so they do not get the blame when things go wrong. But when things do go wrong and they think the regulator is at fault, they quickly start to influence the agenda. If you do not dance to the Government’s tune, as happened with Wheatley, then you will quickly find yourself dumped.
The mood music has changed, both at a UK and European level, and now the conversation is not about more regulation, it’s about potentially having too much.
Whether there is significant deregulation or not remains to be seen, but it looks like the high tide mark for regulation has been passed.
Richard Hobbs is an independent regulatory consultant