Advisers may have got a bit of festive cheer from news the FSA will lessen its supervision of lower-risk firms as the regulator manages its transition into the Consumer Protection and Markets Authority.
Speaking this week at a Reuters event in London, chief executive Hector Sants said the FSA would have to scale back some of its supervisory activity as staff resources are required to focus on the move.
However, it is far from clear whether this sensible piece of resource management will lead on to more appropriate risk-based regulation of the IFA sector in the longer term.
Sants admitted to delegates the FSA’s focus on high-level systems and controls and consumer disclosure had not worked and restated the new regulator’s desire to intervene earlier in the product chain, potentially a very welcome move.
He also announced a significant shift of supervisory resources away from firm-specific inspection for the sake of it to a greater focus on industrywide interventions. But he suggested this shift would see that, at a minimum, the FSA’s schedule of firm visits every four years and Arrow visits every two years is maintained.
The creation of the CPMA gives regulators a chance to take another look at whether the current regulation of the IFA sector is fit for purpose. The new regulator should be prepared to offer specific regulatory dividends, for example, fewer regulatory visits and lower fees, to firms with low levels of upheld complaints who demonstrate high professional standards.
The regulator should also look again at Aifa’s analysis showing how IFAs pay a disproportionately high amount of the FSA’s indirect costs compared with the rest of the industry.
Any discussion on regulatory costs must also focus on the unfairness in the Financial Services Compensation Scheme, with advisers paying far too much for the mistakes of others.
Key to any consumer protection strategy should be an acknowledgement that consumer access to advice should not just be maintained but encouraged to flourish. Giving the new regulator a specific remit of looking to increase savings and protection levels would help focus their minds in the right direction.
IFA firms representing the bests interests of consumers should not be left to continually struggle under the huge regulatory costs weighing down on the sector.