The FSA’s decision to push most of the burden of its £107m pension deficit onto firms regulated by the Financial Conduct Authority reveals a great deal about its mindset.
Last week the regulator proposed responsibility for its pension deficit should fall mainly on FCA-regulated firms, such as advisers, rather than the banks, building societies and insurers who will be mostly supervised by the Prudential Regulation Authority.
The pension deficit cost firms £19.5m for 2012/13. Under the new regulatory structure dual regulated firms like banks, building societies and insurers would contribute £2.9m, compared to £9.5m under the current system. The remaining £6.6m will fall on FCA-only firms.
The rationale for this move fails to stand up to scrutiny. The FSA argues that as the pension deficit falls upon the FCA as a consequence of the reforms, so firms regulated by the FCA should take on the burden.
If a company with a large pension deficit was split in two it would be highly unlikely that one half would take on the majority of the pension deficit without any compensation.
The FSA’s other argument is that the extra money only represents a small amount of the total FCA budget, so why worry about it?
Such a lack of concern about the need to control costs will be infuriating to firms saddled with rising regulatory fees.
The majority of the deficit is likely to be the result of ex-employees of the Bank of England, the insurance division of the Department for Trade and Industry and the Building Societies Commission. In other words, from historic regulation of large firms such as banks and insurers. Yet these same firms are the ones who will be allowed to relinquish much of the deficit burden.
FCA chief executive designate Martin Wheatley recently attacked fund managers for failing to compete on charges.
When assessing the new world of transparent advice costs next year, Wheatley may also begin to ponder why some of these costs are not lower.
Hopefully he will speak to a few small firms who will give him a breakdown of how much of the client charge is the result of the rising tide of regulatory fees.
Perhaps then there will be a realisation that such charges are a tax on consumers which needs to be managed with the same discipline as a Government trying to control a bulging deficit or a small firm trying to stay in profit.