Aifa and the Personal Finance Society have renewed calls for the FSA to offer regulatory dividends for firms working to comply with the retail distribution review.
Aifa policy director Andrew Strange says regulatory dividends were “part of the promised land” at the start of the RDR process but benefits have yet to materialise.
At a Money Marketing Pave the Way to Save round table last week, Strange said: “The absence of the regulatory dividend is tantamount to admitting the RDR has not worked. If the regulator is going through the RDR process to make the advice sector more of a profession and more trusted, surely, by definition, firms that are meeting the requirements need less compliance.”
PFS president Eddie Grant said: “There really should be some kind of regulatory dividend for RDR-compliant firms. If a firm has committed to professionalism, then it is important it is rewarded for that.”
Cicero Consulting director Iain Anderson said: “The regulatory dividend piece was absolutely part of the quid pro quo when the RDR process started. Then the crisis hit. The opportunity to reduce costs and reduce compliance through a regulatory dividend that rewards firms for tooling up seems to have got lost.”
Strange believes there are a variety of ways that regulatory dividends could be applied, such as lower capital requirements, lower fees, or fewer regulatory visits for those firms that have higher qualified staff or have invested heavily in IT and compliance systems.
He added: “If a firm that had advisers at QCF level four, that was a member of a professional body or trade association, that held capital beyond the levels it had in the past, that had low levels of complaints or no complaints at all, if that firm was only going to be visited every five years rather than every three years, that would save the firm money and act as an incentive for people to move in the right direction in the industry. So why not do that?”
Grant said the regulator should take a less stringent approach in supervising RDR-compliant firms.
He said: “If a firm can show it has adopted a certain set of standards, perhaps the regulator could apply a lighter-touch style of regulation to those firms.”
Anderson believes there is a chance that those in power in the new regulatory structure may be open to the arguments in favour of regulatory dividends.
He said FSA chief executive Hector Sants and Bank of England deputy governor for financial stability Paul Tucker have recently publicly discussed a shift from rule-based regulation to regulation based on judgement.
Anderson said: “To hear Hector Sants and Paul Tucker, the individuals who are going to be deputy governors of the new overarching structure, start to talk about judgements, that gives me some hope that there is a chance to push the debate on regulatory dividends all over again.”