Tony Byrne: Brexit means we can reform regulation

Tony Byrne

The lead up to the EU referendum saw an awful lot of scaremongering from both sides. Among the Remain supporters were the large banks, insurance companies, asset managers and payment services providers, all who could potentially lose out as a result of Britain’s decision to Brexit. Smaller firms such as financial planners, however, do not have branches in the EU and rarely have EU resident clients, so may be less affected by the decision.

Almost all of Britain’s financial services rules are derived from EU law. The problem is that the EU’s financial services sector is dominated by large banks because advisers are virtually unheard of outside of Britain. The consequence of this is that IFAs are regulated by rules designed for larger banks not smaller advice firms.

UK financial services is one of our great success stories. We have a trading surplus with the rest of the world of £20bn a year in financial services, which translates to 1 per cent of our GDP. IFAs continue to control more than 50 per cent of retail funds under management. Financial intermediation is a tremendous benefit to UK investors because it results in greater competition, innovation and lower charges.

Meanwhile, complaints against IFAs constitute just 2 per cent of all complaints each year, with only one in three upheld by the Financial Ombudsman Service. With all of these clear benefits, you would think the FCA would want to support the role of the IFA. But think again.

The regulatory problems for IFAs are numerous but let me just mention a few:

  1. Increased bureaucracy
  2. FSCS funding
  3. Regulatory costs
  4. Professional indemnity insurance
  5. Lack of a long stop
  6. Stifling of business writing

Without a shadow of a doubt, the FCA creates a huge amount of bureaucracy for firms. This is very time consuming, results in higher costs and diverts advisers’ time away from the most important task of advising clients.

Meanwhile, the Financial Services Compensation Scheme funding is extremely unfair. I do not know of any other profession or industry in which the good guys compensate the clients of the bad guys. And regulatory costs keep rising, not just because the FCA’s and FSCS fees keep increasing but also because of the extra time costs of dealing with endless red tape.

Alongside this, the absence of a long stop, the FCA’s culture of encouraging various misselling complaints and the burden of excessive rules simply make it harder year on year for IFAs to get professional indemnity insurance on competitive terms, if at all.

The consequence of all of this is that IFAs get distracted from writing new business and become very risk averse with clients because of a culture of fear of the regulator. None of these problems result in optimum solutions for clients. Now we are no longer a member of the EU, we finally have the opportunity to reform financial services regulation for the good of the UK as a whole.

Tony Byrne is financial planning director at Wealth And Tax Management and author of Wealth Magic

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Comments

There are 8 comments at the moment, we would love to hear your opinion too.

  1. Travel industry (ATOL)?

  2. Yes Yes Yes Tony Spot on!

    Now we can get going.

  3. You forgot a major issue – the failure to recognise the A in IFA. Product focussed legislation and reporting. We need a simple system for those who promote and give advice.

  4. I suggest that you speak directly to Financial Services Compensation Scheme chief executive Mark Neale who can see nothing but problems in the future and besides our many talents expects us to be tax collectors to pay his wages.

  5. Let's take our country back 13th July 2016 at 4:50 pm

    I hear we’ll be able to use children as chimney sweeps again as well.

  6. In your dreams. Most of the regulation is UK. We are worse than those in the EU. Mifid is driven by the FSA/FCA. Europe takes the regulatory lead from us.

    Things are far more relaxed in Europe.Go into any bank in Spain, France or Italy and see the difference.

  7. Like a cottage on a box of shortbread biscuits, you paint a pretty picture Tony !

    I have said this before, a re-fudge of the existing rules or practices is not the answer (not that you are suggesting this) but taking a sledgehammer to the whole rule book and system is !

    I can only speak for myself (but I bet a good many IFA’s work the same as I, and have the same types of clients) what is really needed is separate regulation, for us and from the others (see the I in IFA)

    The biggest problem is…trying to force people (FCA, FOS, FSCS) to part with the sweet deal they have at the moment, huge salaries, no accountability, good chance of getting a gong, nice expenses budget, stress and worry must be non-existent and even if you do stub your toe you have no worry about being sacked and labeled “not fit and proper” you just, by mutual agreement side shift to a big auditor or the like, on a very well paid non-exec job

    Lets be honest, if,with all the the rules, regulations, the FCA prevented anything, why the hell do we have such massive problems, crappy FOS decisions, and bank emptying FSCS levies, and huge money wastage (£3.2 million licence write off to name just one) ?

    Not fit for purpose……… well I know my answer !

    To change this …… well ? it would be like trying to wrestle that nice box of biscuits away from a pack of Tasmanian Devils.

  8. Several reasons why this isn’t going to happen. Firstly, the regulators themselves don’t see any of these issues as a problem. Secondly, the vast majority of this isn’t EU rules it is rules that the UK has come up with ourselves. Thirdly, even if they were EU rules, there is still a very good chance that in order to save the City of London from Brexit we end up with a deal that includes being able to passport services into the EU (and therefore retaining all of the rules that we currently have without having any influence over them moving forward). So I would suggest that absolutely nothing will change for IFA’s and that the regulatory requirements will continue as they are, along with the funding for FSCS etc etc etc

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