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Look at practice, not theory

The arguments were rehear sed for a year or more. The positions were staked out. The Big Date was set. Then we waited…and wait ed…and wai ted. No, not the US presidential election, the great polarisation debate.

The Government&#39s long awaited announcement finally emerged alongside Gordon Brown&#39s pre-Budget report last week. But rather than set tle the issue once and for all the decision is to consult on interim changes for so-called “standardised” products and then to have a further consultation next year on more radical changes.

So, what shall we make of this? Well, the FSA and the Government clearly want to explore the possibility of fundamental changes to the regime in the long run. But they recognise that they do not have enough evidence at the moment on which to base any radical decisions.

Given the risks in this policy area for consumer protection, it is vital for decisions to be backed up by facts about the grassroots impact of any new regime.

Against that background, more extended consultation is good news. It gives encouragement to those who believe the Government will focus on what works rather than just an economic theory.

The consultation that is planned will give the industry and consumers the oppor tunity to consider the full implications of any proposals for far reaching change.

Various commentators have highlighted the importance of making sure these do not compromise consumer protection.

The Consumers&#39 Asso ci ation, for example, has exp ressed concerns that multities will “add confusion and the opportunity for bad advice”. The ABI, the FSA&#39s own consumer panel and the LIA as well as Aifa have all expressed big reservations about the likely impact that removing polarisation would have on the industry and its customers.

Those who advocate abandoning polarisation will have a lot of work to do to show those reservations can be overcome. The proposed rev iew of the disclosure regime will provide the opportunity for these issues to be examined thoroughly – looking at the practice, not just the theory. Clarity and transparency must be a litmus test for any change to the regime.

In relation to the immediate changes that the FSA is propo sing, it is important to bear in mind the continued statements by the FSA and the Government about their desire to ensure that the independent channel is safeguarded.

This was highlighted in London Economics&#39 report and reiterated by Howard Davies and Melanie Johnson in the context of this week&#39s announcement. The industry&#39s responses to the FSA&#39s first-phase proposals would do well to analyse fully the likely impact of the more immediate changes on IFAs and consumers to build a firm base for the longer-term debate.

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