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MM Leader: Regulation must offer rewards for lower-risk firms

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.


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There are 4 comments at the moment, we would love to hear your opinion too.

  1. Yet another admission from Sants that one of the FSA’s regulatory initiatives hasn’t worked. The last one, I believe, was TCF and we all know what the next one’s going to be ~ the biggest initiative yet and, as the massive groundswell of dissenting voices bears testament, it’s well on target to be the FSA’s biggest and costliest red herring yet.

    The shame of it is that the FSA refuses to take any notice of what everybody else is saying, refuses to to publish the feedback it’s received in response to its “consultation” and refuses even to bow to pressure from Parliament to think again. It won’t be until after the industry has wasted a large chunk of the RDR’s revised estimated £1.7Bn implementation costs that, once again, Mr Sants (or his successor) will be forced finally, yet again, to admit that this initiative hasn’t worked either.

    And so it goes ~ one titanically costly yet ultimately doomed initiative after another, with each of them being heralded as the one that’s finally going to do the trick. But hey ~ who at Canary Wharf cares? It’s all paid for using other peoples’ money, so we’ll just batter on regardless spending tens of millions of pounds commissioning reports, surveys, Cost:Benefit Analyses and all those kinds of things until hopefully we’ll finally stumble across the magic solution to fix all the ills of the industry.

    If it wasn’t all such a monumental waste of time and money and resources, it’d be laughable.

  2. Until those in power realise that regulation as it stands does not work then we will continue to end up funding for the mistakes and fraudulent activity of others via a flawed and ridiculous sytem.

    All the regulations in the world won’t stop them as they keep discovering, it is the same with the many benefits people can claim for which we hear time and time again being abused at huge costs, yet they claim they will stop it all.

    Regulation is the heart of the problem and sadly no at the top seems to be capable of realising it.

    Regulation and protecting the consumer are not one and the same thing and regulation “does not” protect the consumer as we have seen time and time again.

  3. I think this is great news and what I as a broker have been banging on about for some time. I have not had a complaint in 10 years yet I have to pay for others mistakes who do not show the same due diligence and duty of care. Eureka!! If the banks have to start paying proportionately for complaints they might sort their shop out.
    I know many advisors are disillusioned but please actually digest what is being said, it is common sense prevailing at last and support should be given to sensible regulation. Regulation should not and will not be abandoned and bad brokers should be expelled or priced out of the market. This can and should include direct sales forces also. As long as a level playing field can be created I think decent brokers will prevail. Care should be taken not to take too defensive stand against all FSA propositions. Isn’t this attitude how Hector Sants, Hoban and Turner have lost so much respect after all. A wise persons learns from other peoples mistakes.

  4. Simple solution operate a no claims discount scheme based on past claims history.
    IFAs who have phoenixed would not be eligible for any intro discount. those who are 5 years claim free would have max discount.
    Worth discussion?

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