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Look past the present

Over the last year, there has been little escape from two key issues – the retail distribution review and the impact of the credit crunch.

But there is a danger that these two issues take over hearts and minds at the expense of other equally important matters which, if left unchecked, will have the effect of potentially derailing advisers’ ability to write business in the future.

Although the immediate priority will be to maintain cashflows and survive in the market until conditions improve, if I project forward to a time when the ravages of the credit crunch are but a distant memory, it would be a shame for advisers to have survived such an onslaught only to find that unchecked regulatory changes see their businesses hit the buffers.

The level of regulatory change taking place across our industry is unrelenting. At the last time of counting, there were upwards of 30 individual pieces of legislative/regulation change or ongoing reviews covering a vast array of subjects from disclosure to consumer responsibility. Combined, these potentially result in a significant change in the distribution landscape, although any of us could be forgiven for believing the RDR was the only such issue.

I consider the RDR has a role in improving the standing of our industry with consumers and rekindling the trust that we have lost along the way but there is a danger that we become totally occupied by the RDR and fail to see the bigger picture.

The overall landscape of financial services is changing. Restoring and building consumer confidence in the industry and developing an economically sustainable model is in all our long-term interests but this is not something we can dabble in as and when the fancy takes us.

Consumer confidence is not a switch that be turned on and off. It needs to be constructed and nurtured over a sustained period of time.

Generating such confidence can only come from within. This leads us to a difficult questions we must ask ourselves – do we believe our house is in order?

As an industry, we can at times lack a clear sense of vision or sense of purpose. If we cannot agree collectively on how we address various challenges, then how and why should we expect the wider public to buy in to our industry? This is our challenge.

We must be prepare to display self-belief in the structures, sales processes and the products we bring to market.

If we are to get our act together, it is imperative that the regulatory bodies create a conducive environment. No matter how much policy, regulatory and legislative change bear down upon us, the approach to supervision of the industry is as important as the regulations themselves, especially if a sustainable framework is to be created.

For the supervisory environment to be effective, two of the most important principles in our view are balance and capability. There should be an appropriate balance between prudential supervision and conduct of business supervision and also a balance between higher-level principles and detailed rules.

The Turner review highlighted the issue of balance between prudential supervision and conduct of business supervision in the banking sector.

Few people dispute that over the last 10 years, the balance in this area has become tilted significantly towards conduct of business while, in reality, the greatest risks potentially sit in the prudential arena.

Inevitably, we will now see a rebalancing of this situation, with ever increasing levels of supervisory effort moving towards the prudential elements which will in turn have significant impact on the way in which we operate our industry.

The Turner review made 32 core recommendations and although these focused specifically on the banking arena, there are inevitably elements from these that will be considered for the wider financial services marketplace. The review also recommended that the FSA should complete the implementation of its supervisory enhancement programme, which was already in process at the start of the recent crisis.

As a result of this, we can expect the FSA to make a major shift in its approach towards a more intrusive and more systemic approach to supervision.

As well as an increase in the resources devoted by the FSA to the supervision of high-impact firms (particularly complex banks), a critical factor is the movement from focusing on systems and processes to examining business models, strategies, risks and outcomes.

Within this approach, there will be a significant focus on technical skills and the more intrusive style will see the FSA not only focus on the outcomes but also potentially taking a far more judgemental approach to the competence of decision-making within businesses.

We need to make ourselves ready for far greater integration about how we are operating our businesses rather than simply how consumers have been affected by this.

What do we see emerging here? Firms with tunnel vision and a sole focus on the RDR will get left behind. The successful businesses of the future will be those which are able to successfully negotiate the entire regulatory landscape.


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Jeremy Pearson is Technical Support Manager with Canada Life’s ican Technical Services Team. Canada Life offers a range of wealth management solutions, including retirement income planning, estate planning and investment solutions from a choice of jurisdictions, including the UK, Isle of Man and Republic of Ireland. Many parents value the standard of education offered by […]


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