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HBOS warns FOS wields more power than FSA

ABI conference told hindsight risk is causing uncertainty and stifling industry innovation

HBOS has attacked the Financial Ombudsman Service for effectively being more powerful than the FSA and slammed its use of hindsight in making judgments.

Speaking at the ABI’s Better Regulation conference in London last week, HBOS insurance and investment chief executive Jo Dawson said the unintended consequences of the ombudsman’s judgments mean it is often the “most powerful force in the regulatory arena”.

She said too often “today’s rules apply to yesterday’s business” and HBOS has decided not to offer basic advice because of concerns over hindsight risk.

She said uncertainty caused by the overlapping regulation of the FOS and FSA and the strength of the ombudsman is a major disincentive to innovate and means the industry and consumers lose out.

Dawson warned that although she sees distinct advantages in the move to princi- ple-based regulation, there is a big risk that the certainty needed by the industry will be non-existent.

She proposed a radical scheme whereby firms sub- mit their interpretation and approach to the FOS or the FSA to get a formal seal of approval. She said such a measure would provide the flexibility and certainty that businesses and consumers seek and dilute the risk of retrospective regulation.

Dawson said: “More challenging still is the power of organisations such as the FOS which have no regulatory remit but huge de facto regulatory impact.”

FSA director Dan Waters claimed the accusation of retrospection was unfair and that UK law guarded against this. He rejected Dawson’s accreditation scheme idea, saying there would be “no better way to get people to turn off their minds in terms of regulation.”

FOS chief ombudsman Walter Merricks said the organisation had tried to engage firms in discussion about openness earlier in the year, receiving conflicting responses, but would continue to ask the industry: “What do you want us to be?”

ABI conference, p3

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