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Playing for time

As we hurtle at great speed towards the retail distribution review deadline and exam halls bulge with QCF level four students, millions of pounds are spent on business transition and advisercharging is introduced to clients, it appears the FSA has ground to a halt on key consultative issues relevant to the RDR.

The regulator was expected to publish a consultation on the funding structure of the Financial Services Compensation Scheme in November, having not updated the arrangements since 2007.

However, it is now saying that the creation of the Prudential Regulation Authority and the Consumer Protection and Markets Authority may have consequences for the future of the FSCS.

May I ask why the creation of the PRA and CPMA needs to delay consultation when all variables in compensation calculations for structure and future funding appear to be as predictable as before?

I truly hope the FSCS does change considerably. How on earth could anyone justify advisers paying for the compensation for defaulting firms such as product provider Keydata, which was classed as an adviser and not as an investment fund manager?

This is pure madness. The High Court will decide later this month whether advisers should be paying towards Keydata and any future investment fund manager compensation or not.

So as we plan for RDR and start to calculate the full cost and expenses to advisory businesses (which means we can charge correctly for advice and service under adviser charging), while ensuring we are TCF-compliant, we will not know until next year what the FSCS compensation costs will be.

Not only has the FSCS consultation been delayed until next year but the capital adequacy consultation has also been moved back from this month until 2011.

And lo and behold, it has been said that the FSA is delaying because the expenditure-based requirements are more complicated to calculate than was previously thought.

The levels of unfettered capital required by financial advisers for the capital adequacy rules is intrinsically linked to the RDR as all costs to the firm must be known so that adviser-charging is calculated realistically.

Ironically, if IFA firms employ a number of fee-based advisers and have lots of highly qualified back-office staff to ensure the most suitable advice is provided to clients, which I believe is what the RDR is all about, the levels of capital adequacy required are higher than old-fashioned IFAs who sold lots of products on a self-employed basis with little administration back-up.

Again, if anyone can explain to me how these rules sit well with RDR and TCF, I would be grateful.

Maybe I am being too hard on the FSA as Europe does have an ever increasing bearing on its activities but at least we know what the future regulatory landscape in Europe will look like in 2011.

All member states have agreed upon the new EU institutional structure (including the new European Supervisory Authorities) and we have thousands of pages of new EU legislation to look forward to – which may provide some answers.

Kim North is director of Technology & Technology

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