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New FCA regime unlikely to lighten load for small firms

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The FSA recently set out its vision of the way the Financial Conduct Authority will regulate the sector but advisers remain unconvinced that it will lead to improvements in the supervision of small firms.

The Journey to the FCA document, released this month, details the proposed plans for product intervention and sets out how the new regulator intends to react to issues faster by adopting a more in-depth approach to small and intermediary firms.

New measures set out in the document suggest the FCA will have contact with all small firms at least once every four years, with greater focus on higher-risk firms, who will be monitored with face-to-face interviews. There will be a ‘touch point’ with smaller firms, which could be in the form of a roadshow, a telephone call, an interview, an online assessment, or a combination of all of these.

Smaller firms will also be assessed by a ‘risk-profiling’ tool to individually investigate the risks they could pose to consumers, based on firm data already provided to the FSA. The firms deemed high-risk and 25 per cent of those deemed medium/high-risk will have a face-to-face interview, where they will receive verbal feedback. Firms still deemed to be high-risk after this interview will be subject to a follow up supervisory test.

Thameside Wealth Management Director, Tom Kean, says: “They’re re-inventing themselves to limit any on-going liability they might have. It’s pretty cynical in my view, and I’ve never really understood what they’re trying to achieve other than spending millions of pounds on re-branding and making everybody change their headed paper. I don’t think it works at the moment, but there’s nothing to indicate a new entity would do any better. Why change it in the first place to have all these costs?

“I’ve yet to be convinced that this is anything other than civil servants behaving the way civil servants tend to. If there is a positive outcome, it will be by luck, not judgement.”

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Yellowtail Financial Planning managing director Dennis Hall says: “I don’t think regulation in its current form has worked or is working, and it does need a change. But I’m not sure that just changing its name and splitting its responsibilities is going to do the job.”

Many smaller firms have had very little interaction with the FSA in the past, and some feel that going forward, the plan to increase supervision of them once the FCA come in to action is positive, but could potentially become intrusive.

Informed Choice managing director Martin Bamford says: “We view ourselves as a small business and a low-risk business. We’ve had very little direct contact with them, maybe once in the last six years. I think typically, smaller businesses don’t tend to hear much from the FSA. I think they get their balance right and they should be spending most of their time with larger businesses who pose the greatest risk.

“What I hope to see is larger businesses face more scrutiny and smaller businesses face less scrutiny as a result once we change to the FCA.”

Hall says: “It might be a little more intrusive, but I don’t believe on a day-to-day basis they have been intrusive on my business. We have very little to do with them. Yes, they keep firing out things we’d rather they didn’t but in actual business and telephone calls, there’s very little of that going on and in some ways you expect more.

“You need more people on the beat. In the nearly seven years of my business, I’ve had one telephone call from them. We don’t crop up on their radar of being a problem. They don’t know that I’m not doing anything wrong, because they haven’t asked.”

The growing cost of regulation is also a worry for small firms and there is no indication that regulatory costs will lessen with the new regulator. In fact, there is concern that costs could increase. Hall says: “We don’t have the ability to go to shareholders and raise new funds. It’s a disproportionate effect on smaller practitioners, and they’re not helping in any way. They seem to think we’re all carrying the same level of risk and that the damage to the community is the same, but it’s not. Take PPI for example. It’s a mainstream problem and I don’t know of any small firm that has created a problem to that degree, individually or collectively.”

Bamford says: “One benefit is that any increase in cost to a business like ours gets passed on directly to the consumer. The FCA are going to have to be very careful about the approach to the cost of regulation because it will be much clearer.

“I think there needs to be a change. We are facing constant criticism of the FSA and its various failures regarding regulation and protection of customers. I’m not convinced the change from the FSA to the FCA is radical enough, but I think only time will tell.”

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