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Regulation review: A year to forget for the FCA

2014 is likely to be a year the FCA would rather forget.

In December, the damning findings of an inquiry into the regulator’s bungled closed book briefing revealed a catalogue of senior management failings.

FCA director of supervision Clive Adamson, who resigned prior to the publication of the review alongside director of communications Zitah McMillan, described it as the “most serious incident” in the regulator’s history.

The inquiry by Clifford Chance partner Simon Davis concluded the briefing to the Daily Telegraph which sent insurer share prices plummeting in March was “poorly supervised and inadequately controlled”. The report also found the FCA’s response, in which it took six hours to issue a clarification statement, was “seriously inadequate”.

It was a bad end to 2014 for the regulator, whose reputation chairman John Griffith-Jones acknowledges has “taken a knock” as a result.

Ahead of the publication of the review, the FCA announced a restructure to bring together its authorisations and supervision divisions. From April, it will create two new divisions which aim to create a clearer distinction between large and small firms.

Pinsent Masons senior associate Michael Ruck says: “The closed book inquiry will lead to changes in who reports to who internally, but I don’t think there will be any great change in the way the regulator interacts with firms.

“As a result of the restructure, however, supervision may take a more active role in the authorisations process, and more larger firms may be relationship managed.”

Also in December, the FCA published the findings of the third and final cycle of its post-RDR thematic review.

After a “wake-up call” second review in April, which warned many advisers were not providing clear information on the costs of services, the FCA noted a material improvement in firms’ disclosure.

But while the FCA says there are “encouraging signs” the RDR is on track to achieve its objectives, the review highlighted a number of areas of concern, with many firms still failing to provide clients with clear disclosure on their ongoing services.

“The real question is what did the regulator have in mind with the RDR?” says independent regulatory consultant Richard Hobbs.

“The FCA tells us that there has been a reduction in product bias and no obvious reduction in the amount of advice available to consumers.

“But we are expected to accept at face value that commission was banned on 1 January 2013. Most economists would say that contingent charges are a form of commission. The switching the FCA claims credit for might be no more than firms finding another way of creating volume driven income by another means.”

The FCA imposed fines totaling £1.5bn in 2014, up from £474m the year before. However, the increase is down to a single scandal: the £1.1bn in penalties levied for foreign exchange rate rigging failings in November.

Major fines in the advice sector included a £1.6m penalty for Sesame for setting up “pay to play” distribution deals which contravened the RDR, and a £560,000 fine for Chase de Vere over Keydata.

National law firm DWF partner Harriet Quiney says: “The fines in 2014 were massive compared to 2013 and you would like to think it was changing behaviour, but one of the difficulties is it takes the regulator around two years to take action.

“It is a bit like a naughty child: if you don’t tell them off straight away, they will forget what they have done wrong.”

The FCA has said it will review its fines policy in the next financial year. The Government has also recommended a number of changes to the way the FCA handles its enforcement process, including a quicker route to appeal and scrapping some discounts on fines.

Key pieces of regulatory work for the advice sector in 2015 include a thematic review on retail investment advice due diligence, and further work on disclosure.

As part of this the FCA will look at how behavioural economics can improve consumers’ understanding of the cost advice.

The regulator has a behavioural economics team working on a number of projects, including whether better disclosure can improve consumer understanding of complex products, and looks set to become increasingly influential in FCA policy.

But experts say advice firms can generally expect more of the same from the FCA in 2015.

Ruck says: “We will see a continuation of the work the FCA has been doing in 2014 in areas such as product intervention and financial promotions.

“Consumer credit will continue to take up a lot of the regulator’s resource in 2015, as there is a lot of work to be done on authorisations and getting rid of firms that do not meet its standards.”

Quiney says the regulator is “still bedding in” to a certain extent, as it is only 18 months since its creation.

She says: “They have a lot on their plate with the consumer credit sector and they haven’t been as aggressive as some expected on things like past business reviews. But now is not the time to be bringing out a bold new strategy.”



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There are 7 comments at the moment, we would love to hear your opinion too.

  1. A year for the FCA to forget? What – another one?!?

    The FCA is 30 years old this year.
    It was incorporated in 1985 in the approach to the original Financial Services Act, and whilst its name has been changed, and its statutory powers amended a few times, the comings and goings of its staff, and the development of its culture has been wholly unrelated to such changes. Clive Adamson for example neither joined with one of the name changes, nor left with one.

    And what of this 30 year history? How many of these years, and all the triumphs and disasters (largely disasters) that have occurred do they now acknowledge as their own?

    No. Lets not let them forget last year or any past year. Unless/until we have them all fired and company no.1920623 wound up, replaced (if at all) by a new organisation of new people outside London, they are the same old FCA/FSA/SIB – whatever they may claim.

  2. We note Martin Wheatley’s bold claim that the FCA was going to be “a very different animal from its predecessor”. Evidently, different doesn’t mean better. Rather, it appears in practice to mean just as bad but in different ways. And still we have to fund the monster.

  3. Just wait to see what happens in 2015! Bring it on!

  4. What sticks in the craw of many advisers is the double-standards applied.

    We all make mistakes, it’s human nature to occasionally err, but advisers frequently pay a high price for their errors whereas regulatory errors are usually rewarded with fat pay-offs and advantageous opportunities within the banking/accountancy sector.

    Oh, and there’s the unlimited liability . . .

  5. If this had happened where a regulated firm released information in this way what would have been the FCA response. Answers on a Postcard……………….

  6. To be fair the whole regulatory system stinks and has done for quite some time !!

    As MIB has pointed out its 30 years old (in real terms) and the pile of poo just gets pushed from one corner to the next, or from one desk to another ! making more of a stink every minute.

    Its to political, this has been a very useful tool for the government for the past 10 years or so and most of what they do is smoke and mirrors, RDR, thematic reviews, RMAR, etc etc etc

    IMHO, they could do a far better job if the concentrated on the job in hand doing what they are supposed to and probably at a fraction of the cost,

    Personally I would take an “etch-a sketch” approach to the whole regulatory system and start again, because what has started off as a house has turned into a ball of wool !!

  7. Michael Winfield 7th January 2015 at 11:46 am

    No Government would dare to impose the Cr-p Financial Services Regulation on the Legal Profession.

    Perhaps its because solicitors write their own rules to protect the profession and for others to increase their income.

    Weak or ideological Government’s are the culprits.

    A French Revolution might eliminate the people paid to protect the people who instead protect the party and themselves.

    Is it not time to charge the current and penultimate Prime and Cabinet Ministers with Treason.

    I know of no body who would not welcome a weeks pay for 2 days work.

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