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McCreevy asserts his authority

It was the long arm of Charlie McCreevy rather than the clunking fist of Gordon Brown that dominated the financial services news agenda this week after he forced the FSA’s hand over the menu and IDD.

The EU Internal Market Commissioner effectively KO’d the ability of the FSA to force advisers to use the documents as he strives to ensure there are as few add-ons to Mifid as possible ahead of the November 1 start date.

The FSA applied in January for a small number of Article 4 justifications for regulations above the directive itbelieved were needed, including retaining the menu and IDD.

But McCreevy made it clear recently the number of Mifid add-ons put forward risked turning the directive into a “real practical nightmare” and it seems the FSA could not convince the Irishman of the argument that the documents should be retained due to the unique nature of the UK financial services landscape.

FSA chief executive John Tiner warned recently of the potential conflicts arising from the fact the EC has different objectives from member state regulators- such as moving towards a single market- and this issue sums up the dilemma.

The FSA regularly points out around three-quarters of new regulations emanate from Europe and not Canary Wharf and the regulator’s interaction with Europe will be a high priority for Tiner’s soon to be announced replacement.

So where are we now? From November retail intermediaries will have to abide by the minimum disclosure requirements of Mifid but the FSA suggests during the transition period advisers may want to use the menu and IDD as guidance and a safe harbour.

Aifa believes the majority of advisers will take this route to ensure good practice until the FSA decides on a replacement strategy.

The FSA also published research, part of its on-going post depolarisation review, to coincide with the announcement that found the menu failed to achieve its objectives of reducing commission levels and increasing fee-based advice.

It is no secret the FSA has not been impressed with what the menu and IDD have achieved since depolarisation, although the documents had little time to bed in.

Director of retail policy Dan Waters told Money Marketing last Autumn that he did not think the menu had been a success and simplification was required.

But the regulator, along with the likes of the ABI and Aifa, was hoping that the future of the documents could wait until a post-implementation review in
2008.

With the retail distribution review publishing its first discussion paper at the end of the month- and the issue of remuneration and incentives set to be a priority- possible replacements for the menu and IDD are bound to be on the agenda.

Elsewhere, a legal challenge against the Financial Ombudsman Service could give advisers some hope they will not have to face claims against them from
the distant past.

Solicitors Shakespeare Putsman LLP has applied for two judicial reviews against the FOS on the ground that final decisions were wrong because they did not take into account the 15 year long stop rule or Fimbra rules of the time and breached the Human Rights Act.

If the judge accepts the initial arguments there could be a full hearing later in the year.

In related news, the Information Commissioner is to force the Treasury to reveal whether it holds attorney and solicitor general advice about the
compatibility of the Financial Services and Markets Act with the Human Rights Act following a two year battle.

The Information Commissioner says if the information was not sought it would raise legitimate and important issues about the basis for the Government making this decision.

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