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Ramparts are breached

So, the great polarisation debate takes another, but perhaps inevitable, twist. The decision on the future of polarisation is to be deferred until next year – except, of course, that Cat-standard Isas and stakeholder pensions are to be “depol arised” sooner. What significance can we attach to these decisions and what now for the future of polarisation itself?

First, the approach to stakeholder should come as no great surprise – the Government&#39s position is clear. It will not allow any hurdle to stand in the way of stakeholder&#39s success – and polarisation is perceived as just such a hurdle.

The London Economics report put forward the depolarisation of Cat-standard products as one of its main options. It noted, however, (as did many others) that there were risks with this, primarily the likelihood of consumer confusion.

So, how will this particular Government policy be accommodated within the regulatory framework?

Can the current advertising rules cope with depolarised stakeholder being sold alongside polarised individual pensions? Product bias rules may also need revisiting. They clearly cannot be applied to a provider whose product is chosen by the tied agent of another host. How will the best advice rules need to be modified? Is this the time for a “suitability” test to take their place?

All this points to a need for careful consideration of all the FSA&#39s rules. This may indicate why the real decision has been deferred – to give the FSA much needed time to identify all the necessary rule changes and assess the impact on the total marketplace of the initial changes.

The latest review was sparked by the OFT&#39s findings that polarisation was anti-competitive. Removing one product is hardly likely to change its views so further challenges and reforms can be expected. It is difficult to see how this short-term, halfway house can survive comfortably in the future regulatory environment. By April, we will all have to come to grips with yet more products sitting outside the polarisation rules to join such products as mortgages and pure term insurance. Only this time, the products are very obviously investments.

The polarisation ramparts have been brea ched. How long before the rules are completely over-run?

The gap-filling concept (our fav oured approach) looks an unlikely outcome. It would not sit well with depolarised products because it would cause even greater consumer confusion. Instead, this has all the hallmarks of being the beginning of the end for polarisation.

Whether it will mean a return to the “pre-regulation” days will be a real test of the effectiveness of the rest of the regulatory framework.

The key issue that will need to be addressed through both sets of consultation – and which has not been covered yet by the FSA – is responsibility. Who will take responsibility for the actions of the adviser – the host company, the actual product provider, the adviser personally or perhaps even the FSA itself?

One thing is certain – we cannot have a situation where no one is responsible for a signif-icant (and increasing) number of transactions in a well-regulated marketplace.

Consumer protection is the cornerstone of an effective regulatory environment – and that cornerstone cannot be allowed to be buried beneath the weight of political imperative.


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