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PFS chief: Cost of regulation threatens advice firm success


The results of our latest survey of personal finance professionals across the UK, released last month, revealed increased concern regarding the impact of regulatory costs.

For the fifth year in a row, regulation and compliance costs have been identified as a key threat to business success, restricting access to advice and adding complexity for consumers.

Despite the Financial Advice Market Review acknowledging the negative impact of regulatory costs must be addressed, the trend is worsening.

Seventy-five per cent of advisers now consider such costs as one of the biggest threats to their business, up from 72 per cent in 2015 and 67 per cent in 2014.

The message to regulators is clear: the opportunity to introduce regulatory balance cannot be missed. Top of the list is the current review into Financial Services Compensation Scheme funding. While we were pleased with many elements contained within the FCA’s consultation paper, we were disappointed a product levy was ruled out without at least investigating the merits. Perhaps the recent increase in insurance premium tax is considered enough.

The FCA said a product levy would fail to overcome the challenges associated with a system that requires pre-funding. True – but set at the right level it could fund financial education and other initiatives as well as consumer protection.

We are pleased the FCA is committed to shifting the burden of the FSCS to higher-risk segments of our sector but we urge it to broaden its thinking for a long-term solution rather than tinker with an outdated one.

Keith Richards is chief executive of the Personal Finance Society



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There are 3 comments at the moment, we would love to hear your opinion too.

  1. [The] Cost of BAD regulation threatens advice firm success.

    • I am astonished that a product levy is beinf ruled out on the grounds that it requires pre funding.

      I am no genius at these things but offer my services to quickly provide a solution to that non problem

      • The implementation of a system of product levies is fraught with practical obstacles.

        1. Product levies, unless they’re unacceptably vast, can address the crisis of endless uninsured liabilities falling on the FSCS only going forward. As a result of decades of regulatory negligence and incompetence, the industry is sitting on a critically brewing volcano, the eruptions from which may only just have started. Worse may yet lie ahead.

        2. Any system of product levies would have to be tiered according to the perceived risk of each product. Even if it could be done, which body would decide which product should be allocated to which levy band? Surely not the FCA? And would pay for such a huge project?

        3. Incurring yet more expense, there would have to be an appeals system against perceived wrongful risk grading. The whole process could take years, with each party bogged down in endless wrangling.

        And, even if all those obstacles could be overcome, we’d still be left with the problems from the past, which cannot now be undone.

        Going forward, though, a product levy would be largely unnecessary if only the FCA were to step up to the plate and implement systems that would enable it to identify, home in on and nip in the bud the sorts of practices which have resulted in all the liabilities falling on the FSCS. Its first requirement of any firm it identifies as being engaged in the sale or implementation of high risk, potentially toxic products is proof of relevant PII cover which, almost certainly, hardly any firms would have so they could be banged to rights without delay for breaching a fundamental regulatory requirement.

        Product levies are a non-starter. The problems from the past lie with the regulator, as do the measures to prevent them from continuing to occur in the future.

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