One of the more intriguing aspects of Money Marketing’s post-Brexit special issue last week was how little attention many of us have so far paid to the fact that a new FCA chief executive took office just days after the Leave campaign won the EU referendum.
Former Prudential Regulation Authority head Andrew Bailey began his new role at the FCA on 1 July, only a week after the vote for Brexit.
His appointment was announced in January, well in advance of the political and economic turmoil we face as a result of the recent vote. But it is fair to say that – at the very least – it adds complexity to the role which was largely unanticipated six months ago.
So how will he fare and what can advisers expect from Bailey? My guess would be that, for the first few months at least and possibly longer, consumer-facing regulatory issues will take a back seat compared with the need to maintain stability of financial markets.
Ensuring banks have systems in place to deal with economic instability and its effect on their lending strategies – for example with regard to buy-to-let mortgages and unsecured credit like credit cards – will be uppermost in his mind.
In that respect Bailey has 30 years’ experience, not just at the PRA but at the Bank of England before that. His interventions while at the BoE played a role in preserving the stability of the banking system after the financial crisis in 2007, most notably his early involvement in the rescue of Northern Rock.
It may not seem much now, but managing to maintain the Northern Rock’s liquidity through a massive cash injection by the state also helped draw a line under the stability of other banks, which at one point looked set to fall over like dominoes.
However, at some stage Bailey will have to deal with the rest of his consumer-facing in-tray. There will be issues like when to call and end to the long-running compensation saga involving payment protection insurance. My guess here is we should expect a decision sooner rather than later, with a cut-off point some time in 2017, possibly towards the end of the year.
There is also the issue of Mifid II to consider. I have generally been remiss about trying to get my head around European financial regulation. But with lots of technical help from advisers who have been hard at work explaining the issues to me, I now understand far better the inter-connections between the creation of investment products.
The rules in this area cover both “manufacturers” (generally, but not always, product providers) and “distributors” and the subjects include adviser independence, costs and charges disclosure and discretionary fund manager commissions.
For advisers, one of the areas to look at is the way Mifid requires manufacturers to identify the target market for a product. The assessment of this market must be detailed enough to ensure that investors whose needs and objectives are not met by the product do not somehow become buyers of it.
Again, I have read some arguments saying that as these are Brussels-inspired rules, the requirement to apply them is now much less than it was. If so, why not walk away from Mifid II?
I would not bet on that scenario. Once Article 50 is triggered, it is highly likely negotiations will take place on how the UK can remain integrated with the EU financial system and maintain the equivalence that will allow it to compete effectively in a common market for financial services. Agreement to Mifid II will be part of the price of that.
In any case, as some experts have indicated, not only was Mifid to a large extent the brainchild of the FCA but much of the preparatory work for it has already been carried out. For providers, it would be just as disruptive, if not more so, to abandon to Mifid II than to continue with it.
There is another area that is worth singling out as being of interest to the consumer-facing side of this industry – which Bailey has spent a lot of time developing while at the PRA. It is the senior managers regime, which came into effect earlier this year.
This sets out clear responsibilities for managers and if things go wrong, they can be held personally to account. According to one report I saw in March, up to 3,000 senior insurers and 7,000 bankers will come under the senior managers regime.
For me, its importance is it begins to level the playing field in terms of requiring senior executives and managers to take personal responsibility for actions carried out within insurers and asset managers, in much the same way as advisers already come under scrutiny within their own firms.
Some commentators have described the senior managers regime as being too soft. Let’s wait and see. For now, Bailey’s direct involvement while at the PRA in creating a system of personal accountability for senior executives raises questions about a new philosophical line of travel within the FCA itself.
If use of the regime were to be applied more universally, this can only be welcomed. Bailey could turn out to be the right man, in the right job, at the right time. Let’s hope so.
Nic Cicutti can be contacted at firstname.lastname@example.org