Chancellor George Osborne’s decision to funnel the proceeds of fines to the public purse rather than back to the industry may be a popular decision with voters but caution should be exercised.
Osborne this week confirmed to Parliament that he intends to legislate so any fines from April onwards, including the recent £59.5m Barclays fine, will be paid to the exchequer rather than being used to reduce future industry FSA costs.
At present, the fee block housing the offending firm pays for any enforcement work which has led to the fine. The proceeds of the fine are first used to refund the fee block for the cost of this work, with any extra funds distributed across all FSA fee blocks to reduce future regulatory costs.
Therefore, IFAs have plenty to lose from this move, which has been triggered by the banks once more displaying their failure to act in a decent manner.
Policymakers need to keep in mind that the proceeds of fines are not just used to subsidise the banks but also to reduce the huge and increasing regulatory costs suffered by IFA firms. These are likely to be passed on to their clients in extra charges.
Osborne could easily look to amend the rules to ensure the polluter does not benefit from fine rebates without increasing the costs for the customers of all financial services firms. Of course, this route is less likely to conveniently fill holes in the Treasury budget caused by a raft of recent U-turns.
At a time when too few people are engaging with financial services, increasing further the regulatory costs for decent firms and their clients in exchange for a bit of political opportunism and to paper over embarrassing Budget errors would be a huge error of judgement from the Chancellor.
Welcome FSA move
We welcome last week’s warning from the FSA over distribution deals which may look to circumvent the RDR’s adviser charging rules. The regulator says it has found a number of concerning models and is considering action. The RDR has little chance of success if certain firms are allowed to continue receiving payments which may bias the advice being given.