In retail financial services, 2013 will come to be seen as the year of the business models. Many intermediaries will be operating new or revised business models as the result of the RDR and the regulator itself will be operating a revised business model.
The interaction between the two will be painful for some. And what is more, the European institutions are ploughing on with Mifid II and Prips, both of which will overlay the RDR eventually.
Much has been written about the post-RDR world but the key point in 2013 is not that a new regulator will gain its legal powers, but that it proposes to use them in a different way.
It is cutting back on the number of firms that will receive dedicated supervision from teams of supervisors.
Instead they will have to go through the firm contact centre to speak to anyone at the FCA. The FCA will rely more instead on thematic work and read across from sample findings to the whole sector.
Anyone rejoicing that this might signal a lighter burden for their firm may be disappointed. There will be more data to be supplied and more occasions where firms have to prove that they have not been doing what the FCA found in their sample. Proving a negative can be a very frustrating experience and this cheaper-by-the-dozen tactic may be pragmatic cost saving, but it will really only transfer cost from one pocket to another for firms.
In an RDR context this new approach should be a cause for concern. The FCA may be expected to start its thematic work on RDR compliance quite quickly in the New Year. It has signalled its preparedness to change the RDR quickly if it is not working as hoped. But before that its themes are likely to be around holding out (whether a firm claiming to be independent really is), whether charging conforms to their view of it, or whether commission effects are being created, and indirect benefits.
Platforms are probably most at risk since the new rules for them are the least well specified and furthest from reality.
So firms that think it is all over may find they have to revise their business model further under pressure from the FCA.
They must also be prepared for product interventions. Once the FCA has its new powers it can make good on its intention to prevent the sale of Ucis.
So far, the FSA has been using its financial promotion powers ingeniously to frustrate Ucis sales, but from a date in Q2 2013 it will be able to intervene more directly.
The fact that a leading insurer has recently doubled its PI premiums for IFAs is an indicator that risk will rise in 2013.
Europe too is anxious to get in on the act. Mifid II may or may not ban execution only sales, (probably not in the final analysis). And Prips is not dead despite the previous understanding that the initiative was being split into Mifid and IMD reviews. Both Mifid II and Prips will probably be implemented by “intelligent copy out” – that is writing whole articles of the directives into the FSA Handbook.
How this will interact with the existing RDR rules in COBS is unclear but rough edges appear inevitable.
Happy New Year!
Richard Hobbs is director of regulatory consulting at Lansons