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Play a part in building the new regime

Looking back over the past year, it is difficult to decide whether 1997 was the calm before the storm or the glim mer of a new dawn for reg ulation.

The IFA Association is encouraged by the sympathetic and understanding response that it has had from those who are charged to deliver the new regulatory regime.

There appears to be developing a high degree of consensus between the regul ators and the regulated.

We are hopeful that, this time, we shall jointly be able to achieve a form of regulation which provides an acceptable level of protection for the consumer without suffocating the practitioner in ever-increasing bureaucracy.

Central to the IFAA&#39s proposals was its Changing the Prescription document which set out its views on the compelling need for a different approach to regulation. The document proposed a single financial services industry regulator.

We strongly believe that, to be effective, regulation has to be more clearly defined. Then it can gain the confidence and support of the practitioner and provide a level of protection to the consumer which will be understood and appreciated.

The IFAA&#39s document proposed that the new regulator should have clear lines of accountability to Parliament and to the consumer, upon whose investments and policies the costs of regulation inevitably impact.

A reminder was given that the consumer cannot be absolved from all responsibility for his or her decisions and that total protection is neither possible nor desirable.

The consultation and debate over the form of the new regulation and accompanying legislation will no doubt attract both new, untried ideas and the regurgitation of old, previously rejected, ones.

I expect to see a rerun of the multi-tie argument, as well as pressure from some quarters for increased levels of capital adequacy.

There is also the need to convince the new regulator that the systems and controls necessary to regulate big corporations are not the best way to regulate the smaller prac titioner.

We need to get the politicians, the regulator, the consumerists and the media to understand the difference between the various component parts of the financial services industry.

The pension transfer review has demonstrated how ignorance of the true position has the potential to damage unjustifiably one section of the industry and give undeserved advantage to another.

I refer to the Government/regulator-driven encouragement to the bigger operators to buy their way out of the problem, regardless of individual justice, and the overall effect on other policyholders&#39 funds. The IFA does not enjoy the luxury of being in a position to be so generous with other people&#39s funds.

The IFA must rely on settlement through professional indemnity insurance, which is based on resolving commercial disputes. Redress seems, in some quarters, to have become not a matter of settling a commercial debt but of buying off an embarrassment.

There can be no justice in a situation where one part of the industry can gain unfair advantage at the expense of others.

The time is right for a further review of regulation. We have an industry that has gone through a cycle of init ial apathy, resentful tacit compliance, to a realisation and acceptance that regulation is here to stay and, indeed, is a necessary part of all our businesses.

Unfortunately, in responding to this cycle, the regulators have imposed such Draconian rules and regulations that the original objective of customer protection has been reduced to a side issue in what has become a titanic struggle between the regulators and the regulated.

The Financial Services Authority has a golden opportunity to remove the entrenched attitudes from all sides which have hindered so much the development of our industry and damaged reputations over recent years.

We have all learned lessons over the past 10 years. It is now time for all sides to put this experience to good use in shaping our industry and its future regulation.

Good regulation provides a level playing field, gives clear definition of its scope and purpose, requires accountability, provides clear guidance, has disciplinary procedures which acknowledge justice, and accepts that consumers cannot be absolved from all responsibility for their actions.

It creates an environment where practitioners can be confident in their compliance and the consumer can be confident in the protection provided.

This mutual confidence will mean that consumers will be more likely to make provision for their families and for their old age and not rely so heavily on the state for this protection. This must be a desirable aim.

Bad regulation gives no definition of its scope and purpose, does not require accountability, gives no clear guidance and seeks to prot ect the consumer from eventualities.

Under this regime, the regulator has a virtual carte blanche and can interpret or add to the rules at will and, indeed, can impose retrospective effect if so minded.

Bad regulation has a disciplinary procedure that ignores natural justice and where the level of fine depends on the ability to pay and the need to attract the biggest headline – almost irrespective of the offence committed.

No industry can develop and prosper under this form of regulation.

It causes confusion and resentment among practitioners and is of little benefit to the consumer as it provides no greater protection than would be available under a lighter version.

Indeed, it could well be argued that the consumer&#39s interests are harmed through the enormous costs of this blanket regulation being passed on through reduction in yield on the products purchased.

In seeking a lighter touch of regulation, the practiti oner must accept areas of responsibility.

We cannot allow another scandal of the pension misselling variety to happen. We must demonstrate clearly that we are prepared to put our own house in order.

First, we must complete the pension review with all speed and commit it to history as soon as possible. We must resolve to embrace the tenets of regulation and make them work effectively for the benefit of our clients and of our businesses.

Systems and procedures must be modernised and reviewed regularly to ensure continuing compliance.

Levels of knowledge and education and customer care will need to be improved on an ongoing basis so that, eventually, we truly achieve the status of professionalism.

If we are prepared to do all these things, we shall achieve the form of regulation that we deserve and gain the recognition of the valuable service that we provide to the community.

We can all play our part in fashioning a prosperous future for ourselves and our clients and in giving the new regulator confidence in our integrity.

1998 will be something of a watershed. Increasingly, the public is deciding its preference for independent financial advice.

If the market is allowed to develop under a new regime of firm but fair and clearly defined regulation and we are prepared to continue to strive for professionalism, the independent financial adviser has little to fear and much to gain.


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