Legal experts have warned that the Government’s new regulatory framework will create immense costs for the financial services industry and many of its perceived benefits are largely illusory.
CMS Cameron McKenna partner Simon Morris says the new regime is an unwelcome development for firms which will be saddled with extra costs at a time when they are strapped for cash.
He says: “If there are a whole new set of rules and procedures to observe, people will have to be paid to study them, systems may need to be altered, new compliance staff may need to be brought on to manage four relationships rather than one and there will be the cost of getting specialist advice.”
Morris warns of the risk of moving back to an “alphabet soup” regulatory framework under the new fragmented structure and says the voice of the UK financial services industry in Europe could be weakened.
He says: “The regulation of 20 years ago when you had SIB and five regulators under it bought us the Equitable Life debacle and everything fell between the stools. If there was some blindingly obvious advantage, as there was with the creation of a single FSA compared with the predecessor regulators, we could recognise that but I just do not see it. This regime is going to be more or less the same people requiring firms to follow broadly the same rules.”
Fishburns Solicitors partner Harriet Quiney says the new structure will create uncertainty for advisers and there could be big practical problems.
She says: “The FSA has had huge problems recruiting staff because of the lack of certainty. People are not going to want to join the CPA when they do not know its direction.”
Lansons Communications regulatory consulting practice director Mark Penton says the two-year timeframe for primary legislation is viable but the industry faces five years of uncertainty while it rebuilds the regulatory framework.
He says: “What is important is the relevant organisations and their stakeholders are clear on who does what and pieces do not fall between the gaps. It will be extremely resource-intensive and the cost will be very big at a time when money is tight.”