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Professional priority

The financial services business should take the opportunity presented by the FSA’s principle-based regime to raise standards and the CII can help to lead the way, says John Ellis, group public affairs director at the Chartered Insurance Institute

The FSA’s paper on principle-based rules (CP06/19) and its discussion paper 06/5 on industry guidance are, if the opportunities presented by them are taken up by the industry, a major step towards greater ownership by the industry of its standards.

They mean that, in principle, the industry could be “licensed” by the FSA to voluntarily adopt a professional approach in all its activities rather than merely comply with laws and regulations.

Instead of having new prescriptive requirements forced upon us, we can go to the FSA and seek their agreement to our own professional solutions.

The industry has historically claimed to be a major contributor to the welfare of its customers.

Some have argued that this is a pretence. That the industry is really only trying to exploit public need and Government policy to make money, regardless of the public interest – and that if it can get away with ripping people off, it will.

This is why we need to respond to the FSA’s offer effectively to trust the industry more, not by PR campaigns, which are about presentation alone, but by revealing in our actions a fully professional approach to the welfare of customers.

Since 1981, when I first became involved with the public policy applying to the insurance and retail investment industry, I have been conscious of a dislocation in the industry’s approach to standards. There seems to be no established mechanism for agreeing and enforcing professional standards or major change at an ethical level.

No industry or public body is accepted as the authority from which the industry as a whole draws its standards. Even the regulator is seen as merely an arrangement forced upon us and its requirements have the force of law. Even worse, the industry seems to have no agreed mechanism for arriving at a common opinion on these matters.

Additionally, because the industry’s priority is to be financially successful, the lack of cohesion in the drive towards standards means that professionalism quite often takes second place to sales.

It is seen that a better reputation is needed just so we can sell more. The debate rarely goes beyond that. If sales are the priority and cutting some corners brings them in, the standards are rationalised away or just forgotten.

There have been moves in the industry to redress this position.

The debate about licensing of advisers/salesmen in the 1980s was an interesting example of an industry generated self-regulatory initiative. But despite widespread interest, the industry seemed to have no will to implement a structure which would bring licensing into effect across the sector.

The results then were only a few separate initiatives in companies which used a licence as part of their marketing.

The establishment of the Insurance Brokers’ Regis-tration Council by Biba had a lot going for it but there was no consensus for cross-industry enforcement.

Compulsory exams for financial advisers only came in by regulatory enforcement, spurred on by lobbyists (of whom I confess I was one), and even the CII was lukewarm until the likelihood of the regulator backing the move had been established.

Some of us worked hard to bring about a single professional body for financial advisers in the mid-1990s to replace all the warring industry factions but again there was no consensus. Even backing from the PIA made little difference.

In other words, it is still an open question whether the industry has the will to take up the challenge and to adopt its own approach to professionalism, overcoming divisiveness and embracing unity.

Why should the industry do anything about this?

First, there are many good people in the industry who want to see us provide a real service to the customer and the community. People who believe that good service will be rewarded and that it is not necessary to deceive the public into parting with their assets so we can have free use of them and try to explain away the broken promises along the way.

We are fortunate to have these good, professional people and if we lost them or did not ensure their succession, it would further erode public trust.

Second, I am sure there are others like me who are getting tired of hearing the FSA lecture us about how we should know how to improve our business better than they do, only to find the next scandal lining up in the wings and the industry offering woefully inadequate reasons for it and disgraceful failings in addressing the problem.

Third, the compelling vision of an industry trusted by the public, offering real solutions to the financial needs of our fellow citizens, with no hidden agenda, more respect and better service surely has value sufficient to override self-interest.

Now that the FSA, the body entrusted by Parliament with the job of overseeing our standards, is willing to give us a share of the action, shouldn’t we be grasping the opportunity with enthusiasm?

Before all the usual suspects devise their own separate approaches or excuses in response to this call, there is a further issue we need to tackle. When we say the industry should rise to this challenge, who do we mean? There is a need for co-ordination.

This goes back to my earlier question. Who is the bearer of the industry’s standard? Who has the authority to speak for us on what professionalism is like?

The solution adopted by other professions, faced with these questions, has been to establish a professional body. We have a professional body – the Chartered Insurance Institute – which also stands behind the Personal Finance Society, the Society of Mortgage Professionals and a range of faculties for the various facets of our industry.

The industry could empower the CII to be its standard-bearer and work with it to establish the guidance the market needs.

Of course, FSA regulation is about firms and CII members are individuals but I do not see that as a problem. If the firms make all the individuals working for them members of the CII – and so subject to its codes and guidance – and the firms themselves adopt the agreed guidance, then there will be unity of approach.

Vision, imagination and goodwill would be needed to make this approach work. The question I have is whether the industry has the capability within it to do the job.

But the alternative is probably a continuation of the emergencies and failures of the past 18 years and a return to a proscriptive approach. Do we really want that?


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