Kim North: We need forward-looking regulation

Kim North

Nobody can deny that 2011 was difficult for many, particularly from a business perspective. Well, if you think you had a hard year, imagine if you were an investor in Arch cru or Keydata funds. Arch cru investors, under the terms of the £54m payment scheme, have until December 31, 2012 to decide whether to accept the offer of about 70 per cent of their investment by way of compensation.

For Keydata investors, the battle for compensation continues. The Financial Services Compensation Scheme has accepted 5,200 claims from Keydata investors and has already paid out £67m but Aifa is concerned about the disclosure of personal information about investors by law firm Herbert Smith, which is acting on behalf of the FSCS. As a result, it is not just a financial loss for Keydata investors but also a potential breach of European privacy laws where they may seek recourse.

What lies ahead? FSA chairman Lord Turner told Prospect magazine recently that regulators are “not clever enough” to spot problem areas and act quickly enough to prevent or limit their damage”. Although this statement can be taken out of context as the UK authorities make contingency plans on the possible break-up of the eurozone following the unprecedented liquidity crisis, Turner’s statement rings true to me.

There seems to have always been a collapse of a financial institution or product type over my long career in financial services. I will not list them here as I would fill the whole of Money Marketing. We really do need more astute regulation that looks forward and does not always act after the event. I hear both Keydata and Arch cru were visited by regulators and no serious warnings were issued about either company and both created such hardship for investors and advisers. IFAs cannot be expected to take responsibility for the collapse of providers that have gained FSA approval. The crazy thing is that the majority of advisers have had nothing to do with either company but have been forced to put their hands in their pockets to sort out compensation.

Looking ahead, we should see further developments on auto-enrolment and the RDR, which will create opportunities for advisers who will have to bear the cost of changing their businesses if they want to be involved with both. We will need further regulatory guidance to ensure full compliance with both before considerable expenditure is undertaken.

I am reading that pundits believe regulation will be better when the FSA is disbanded and replaced with the Prudential Regulation Authority, the Financial Conduct Authority and the Financial Policy Committee as they will have a more “judgemental” remit. How this differs from what the FSA should have been doing, I will never know.

2012 will be marked as the year of the London Olympics but the backdrop will be a long period of weak growth and high unemployment as individuals and banks pay down excessive levels of debt.

Everyone needs strong and forward-looking regulation to ensure investors’ hardship is not amplified because of loss not due to the troubled stockmarkets but the collapse of financial companies which could have been avoided.

A happy new year to all.

Kim North ( is managing director of Technology and Technical


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There are 2 comments at the moment, we would love to hear your opinion too.

  1. Missold Investments 9th January 2012 at 10:21 am

    Let’s not forget the 2000+ investors with ‘capital at risk’ Lehman-backed products from NDFA, DRL and ARC, the three firms that closed down with mis-selling liabilities in 2009. The outstanding exposure is around £50m. FSCS has already compensated some with NDF June, DRL Kickout and ARC 6 plans, others have been denied compensation, and many don’t even know they can claim.

  2. It’s not just about the regulator “not being clever enough”. As has already been admitted in its report into the near collapse of RBS, the bigger issue is the FSA’s misprioritisation of its regulatory powers, either on its own cognisance or because it was told by its masters at the Treasury to concentrate on the wrong areas.

    No regulator can be perfect but, as stated in the Statutory Code of Practice, which the FSA routinely ignores and which is totally unenforced:-

    The Regulators’ Compliance Code is a central part of the Government’s better regulation agenda. Its aim is to embed a risk-based, proportionate and targeted approach to regulatory inspection and enforcement among the regulators it applies to.

    Our expectation is that as regulators integrate the Code’s standards into their regulatory culture and processes, they will become more efficient and effective in their work. They will be able to use their resources in a way that gets the most value out of the effort that they make, whilst delivering significant benefits to low risk and compliant businesses through
    better-focused inspection activity, increased use of advice for businesses, and lower compliance costs.

    What do you have to say about that, Lord Turner?

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