Back in 1999, I found myself speaking at the Canadian Financial Planners conference on the topic of regulation. In the room set aside for speakers, I was checking my slides when another speaker entered the room. She introduced herself, then immediately asked if I minded if she was noisy. My reply was lost on her, as is most ironic humour on the other side of the pond. She then lay on the floor doing stretches and apparently replaying that famous scene out of When Harry Met Sally where Meg Ryan fakes the proverbial. Like any good News of the World man, I made my excuses and left in case anyone thought I was the catalyst for this welter of noise.
After this brief encounter, I spoke on the evolution of UK regulation and, as I took delegates' questions, it became clear that the UK model was their worst nightmare. As has been said many times before, as much as 20 per cent of an adviser's time is spent dealing with compliance requirements.
Until now, it seemed that the UK was at the forefront, determining the extremes of regulation ahead of both the US and Europe. But recent moves to align UK regulation with forthcoming EU directives simply serve to underline that the FSA cannot continue to operate in a vacuum and the EU will be the pre-eminent body which will shape regulation far into the future.
The current Treasury consultation on e-business brings this even more sharply into focus as it allows for a regulator in a less stringent regime to trade with UK-based consumers. For those who suggest this means relocating a business, read on, for the Treasury paper makes it clear that a “branch office” could have the same ability to be governed by the country in which it is located or, as it is described in the paper, its country of origin.
The recent news that a group of Independent Insurance policyholders will challenge the FSA's legal immunity through the European Court is further evidence of the influence of the EU in regulation.
Perhaps we now have an opportunity to lobby for a far more consumerand advice-led process as opposed to the current approach, which centres on products and attempts to regulate far too diverse a group of companies.
A long time ago, Garry Heath suggested that compliance should be a function of competence, with the more competent given a lighter touch with regard to compliance. The FSA may argue that this is similar to its risk-based approach but I would disagree.
Some of the aims of the Sandler review are likely to be frustrated unless the cost of compliance can be brought into check.
Many continue to raise fears of social exclusion from independent advice as a reason for allowing the introduction of multi-ties as these will “improve” the choice of those who cannot afford fees. The reason why fees are now out of the reach of many consumers is primarily due to advisers' need to fund for future circumstances.
I recently suggested that we should charge an initial fee, not to cover expenses but to create a reserve for that client's first complaint. This may lead us on to rebating these fees in the form of a no-claims bonus.
If the FSA cannot or will not make significant moves to equate the reach of compliance with competence, then we may do better to concentrate our efforts on Europe, given the EU's undoubted influence on regulation into the future.
Perhaps given this potential emasculation of our esteemed regulator, it, like Meg Ryan, has been faking it too?
Robert Reid is principal of Syndaxi Financial Planning