On the very day that Hector Sants’ resignation became public news, I received a response to a Freedom of Information Act request made to the Office of Fair Trading.
I had asked them how many meetings had been held with the FSA and which aspects of the retail distribution
review had been discussed. The answer is nine since December 2006.
I posed a supplementary question, whether the removal of commission, as proposed within the RDR, has been
examined to see whether it breaches the Competition Act 1998 or similar legislation.
Their cautiously worded response was: “The OFT has not carried out a formal review on whether the removal of
commission, as proposed within the retail distribution review, breaches the Competition Act or similar legislation. The FSA proposals relating to commission set by product providers were discussed briefly and the FSA reasoning for that approach was accepted during discussions between the two organisations.”
The reason for these enquiries relates to the “safeguards” that Parliament supposedly put in place to counter any over-enthusiastic rulings or actions by the FSA. When Parliament debated the Financial Services and Markets Act, specifically the potential for the FSA to appropriate
dictatorial powers, Melanie Johnson, MP, pointed to various checks and balances. She assured that the Competition Commission would be
able to investigate instances where FSA actions might lead to a reduction in competition. However, in order to carry out this function, the OFT must request such an investigation.
One can reasonably deduce that the OFT has no such inclination and this is deeply worrying. In 1995, the OFT outlawed the maximum commission agreement on the basis that it constituted a cartel and was anti-competitive. Despite requests, they have not shifted from this
position, even though the impact was to drive up commission by around 40 per cent. In short, they believe that limiting commission to a given
amount is an anti-competitive but that limiting commission to zero is an acceptable exercise. As a publicly funded body, they have a duty to explain their position and their reasons.
Subject to the result of the imminent general election, we can anticipate the appointment of a replacement for Sants and therefore it is appropriate for the industry to point the Treasury in the right direction.
One trait applicable to both the Personal Investment Authority and the FSA has been the habitual appointment of senior officers exhibiting a minimal understanding of how retail markets function. The new CEO needs an intimate knowledge of retail sales and the reasons why consumers buy or refuse to buy. An appreciation of human rights would be an asset, as would the ability to apologise when wrong.
One attribute worthy of mention would be a previous stint of self-employment which would alert him or her to the horror of regulations which have no purpose.
Another fine quality would be the recognition that the FSA is industry-funded and that great care should be exercised to ensure that liberties are not being taken. In fact, I commend to the new CEO the warning implicit in the words of American speaker Keith Davis: “We didn’t actually overspend our budget. The allocation simply fell short of our expenditure.”
Alan Lakey is director of Adviser Alliance and partner at Highclere Financial Services