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MM leader: The costs and the value of regulation

There will be few tears shed by Money Marketing readers as the FSA makes way for the Financial Conduct Authority next week.

The regulatory body created by the previous Labour government leaves behind a long list of shame in terms of the big misselling scandals it did not spot and of course its failures in the run-up to the credit crisis.

Rather than dwell on the past, we must ask whether the new FCA has learned from these previous failings.

In their introduction to the FCA’s business plan, published this week, chairman designate John Griffith-Jones and chief executive Martin Wheatley say they want to create an environment supportive of good conduct but where the incentives and opportunities for bad behaviour are low and penalties high.

Few readers, saddled over the past few years with the huge Financial Services Compensation Scheme costs associated with failed firms and failed regulation, will disagree with the desire to get tough on dodgy practices.

If employed thoughtfully, new powers to ban products on a temporary basis could help stop some of the scandals we have seen, although it will require the right minds to spot the right problems.

The FCA’s stated desire to create a supportive environment for good firms should be treated with more caution. At the start of the RDR we were promised regulatory incentives to encourage good behaviour but they have not appeared.

Instead, decent firms have been subject to huge regulatory costs which are inevitably passed on to their clients.

Estimates based on the FCA’s initial budget figures suggest the advice sector, including investment, GI and mortgages, could see a 30 per cent increase in fees. This is not the start we were looking for.

The FCA’s paper on fees, due next month, will give a better picture on costs, and whether the minimum fee for small firms will rise, but the direction of travel does not appear to be a pleasant one.

When quizzed by Money Marketing over costs last week, Wheatley indicated they were inevitably going up to pay for the FCA’s new powers and responsibilities.

Whilst the regulator regularly opines over the damage caused by high charges, there is rarely the recognition that its costs contribute, sometimes significantly, to such fees. Regulatory costs, paid for by investors in extra product, service and advice charges are a necessary tax, but one that must be kept under careful control.


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There are 2 comments at the moment, we would love to hear your opinion too.

  1. In addition to the FCA’s promised regulatory incentives to encourage good behaviour, it wouldn’t surprise me at all if Martin Wheatley’s statement that the FCA will not perpetuate the FSA’s established practice of dumping onto others responsibility for its own regulatory oversights by way of hindsight reviews is also swept quietly under the carpet.

    Perhaps he thinks we won’t remember or, if we do, what does it matter? After all, no body exists to hold the FCA to account, any more than there’s ever been one to hold the FSA to account. APFA may ask a few questions on the matter but, in now time-honoured fashion, such questions will either be ignored or just brushed aside.

    As for value, we certainly won’t be seeing any sort of Benefits:Costs Analysis. The primary beneficiary of the RDR is the regulator, certainly not, in terms of value, consumers, let alone good practitioners.

  2. FCA, FSA, PIA and SIB all have the same company number at companies house. The staff are pretty much unchanged, it is just the name and signs which have changed at significant reprint cost to US. With pension liabilities left to US when the PCA was carved off. Why did the name have to change?

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