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Setting the boundaries of redrawn regulation

Nicola York interviews Tory Shadow Treasury Financial Secretary Mark Hoban over the shape of regulatory reforms and the prospects for product regulation

With the Tories riding high in the opinion polls and gathering in Manchester for their last party conference before the general election Treasury Financial Secretary Mark Hoban has plenty he wants to talk about. Unfortunately, the retail distribution review is not one of those subjects.

Hoban has repeatedly asserted that issues relating to the RDR are “a matter for the regulator” despite industry concerns over what impact Tory proposals to scrap the FSA could have on RDR implementation.
Money Marketing asked Hoban a number of questions relating to the RDR but Hoban deflected the questions and answered five times: “It is a matter for the regulator.”

MM asked Hoban whether a Conservative Government would conduct a review of the RDR, which parts of the RDR the party is most committed to and whether RDR will be delayed due to the rearrangement of the regulatory system. But Hoban insisted: “It is a matter for the regulator.”

But he did expand somewhat on the latter question, saying he sees no reason why the Tory proposals announ- ced in July should have an impact on the timetable for implementing the RDR.

But surely the Government has a certain influence on and an overall responsibility for the regulation of financial services, even if the specifics are a matter for the regulator?

Hoban says: “Yes, but ministers do not intervene in the day-to-day decisions taken by the FSA. The FSA is accountable to Parliament. It is not clear to me what influence ministers have over the FSA. I suspect you could argue that they do not have very much influence at all.”

Under the Tories’ proposed reforms to the regulatory structure, the FSA would be disbanded and the Bank of England would be likely to take over all its responsibilities, although the Conservatives are consulting on who would take over the regulation of markets.

Within the BoE, a Consumer Protection Agency would take on the oversight of the conduct of business rules, as well as the prudential supervision of intermediaries. The bank will be responsible for the micro and macro prudential regulation of insurers, banks, building societies and credit unions.

Hoban admits “there are some issues” on the boundaries which need to be resolved. IFAs will be overseen by the CPA.

The Tories have not yet said how the transition would take place in practice and have not set a timetable for implementation. It is not a change that can take place overnight but Hoban does not want it to affect the regulation of financial services. He says: “We need to make sure we do it in a way that is properly planned and methodical to ensure that the regulators remain focused on regulation and we do not impair their ability to continue to supervise and regulate financial services firms.”

On the subject of product regulation, Hoban says it is important to have a proper debate in the industry about how it would work and whether it is a replacement for existing types of regulation or in addition to existing regulation.

He says it is necessary to identify whether problems with structured products and payment protection insurance for example, are to do with the design of the products or the advice / sales process.

He says: “We need to think through quite carefully how this works. It is in the interests of consumers for there to be innovation and competition and we need to think about whether you can reconcile product regulation with innovation in the market.”

At an Association of British Insurers’ fringe event at the Tory conference, London Stock Exchange chief executive Xavier Rolet had raised concerns that the financial regulatory system in the UK should not differ too much from other regulatory systems in Europe, the US and Asia because it would make it harder to coordinate joint action on financial crises.

Hoban says: “The problem is there is no single regulatory pattern so we are moving towards the sort of twin peaks’ approach that you see in the Netherlands. In the States, you have a multiplicity of regulators so there is no single regulatory pattern on how a regulator should be established. I think you need to make sure you understand where your regulatory architecture fits in with other bodies.”

In another fringe event that Hoban had just come from, BBC Newsnight economics editor Paul Mason raised concerns that the Bank of England is more opaque and difficult to penetrate than the FSA.

Hoban says there are aspects of the bank which are very transparent, such as the monetary policy committee, which publishes minutes every month. He adds: “But also do not forget, there are decisions the FSA will make that are not in the public domain and we do not know what actions they required of banks that have not been announced to the world.

“Yes, the FSA has a very open process in terms of consultation, it does talk to the markets regularly but it is not an open book.

“You want to make sure that where there is discussion about reforming capital adequacy rules, it is an open process. That is where this discussion with market participants takes place, in the same way we would expect the CPA to have discussions with the market and consu-mer groups about rules that it might make.”

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Comments

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  1. “there are decisions the FSA will make that are not in the public domain”. That’s odd, given that on its own website the FSA claims to be “an open and transparent regulator”. Like it was over the issue of the LAUTRO 19? Or the legal counsel it has taken over denying IFA’s the protection of the 15 year longstop as far as complaints are concerned? Or the legality of assorted elements of the RDR?

    As for product regulation, this has already been debated ad infinitum since time immemorial. My own view is that it’s a totally impractical proposition, for the simple reason that a (quality) product which may be perfectly suitable for one type of investor may well be totally unsuitable for another. How do you regulate that? The very notion is a complete red herring, not least at a time when regulation needs to be simplified and clarified (to name just two improvements).

    And how can Hoban claim that on the one hand it isn’t the place of government to intervene in the day to day running of the FSA but, on the other, that a new Conservative administration may well scrap the entire organisation, thereby throwing down the drain the good parts of the present regulatory framework as well as the bad? This is simply not joined up, logical thinking. Improvement, refinement, reformation and regulation are what the FSA needs, (to name but four things) not a scrap it or just-let-them-get-on-with-it approach from government.

    I don’t trust this Hoban bloke any further than I could throw him.

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