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Talking points

I am of that old-fashioned school of thought that believes when a minister wishes to make a policy announcement, it should be made in the House of Commons. The reason why our democratic system works is that those who govern know they do so with the consent of the governed. Part of this social contract is the ability of the people, through our elected representatives, to challenge the proposals of the Government.

There is a simple parallel between this system of Government and the way a regulator should behave. I am worried that we are seeing the system erode. If we are not careful, we risk principles-based regulation becoming regulation by speech and that is dangerous for all parties.

The current system of regulatory policy development provides for the FSA to engage with consumer groups and the industry to seek views and sound out ideas. This process becomes formalised with the publication of a discussion paper, with a three-month period to allow for considered responses and engagement across the spectrum of stakeholders.

Some of the thoughts in the discussion paper may emerge in a better shaped form in a consultation paper which provides a more detailed view of FSA proposals. Again, a period for response is set out and the FSA then considers arguments and proposals from across the sector.

The benefit of this system is that it allows for consultation. This is the essential element in developing better regulation as it allows consumers and the industry to help refine the FSA’s thoughts, spot any unintended consequences and ensure a valid process of accountability is in place. A system without consultation loses credibility as it stops being a dialogue.

It recently struck me that in the brief time I have been doing this job, the balance of my time has shifted from reviewing rules to analysing speeches, looking for the nuances contained in public statements and predicting the future by pouring over pronouncements from different FSA directors. Key messages now emerge from the regulator via speech.

We welcome the fact that the FSA gives an insight into its thinking by its public comments. Without these, it would be harder to evaluate its direction of travel on key matters. However, if “the move toward a more principle-based regulatory regime” (TMTAMPBRR – my latest regulatory catchphrase) is to be successful, it means all parties must consider how important messages are to be delivered, both to allow for consultation and response.

Few IFA firms have the resources to analyse each discussion and consultation paper produced by the FSA, let alone search out each speech and analyse its impact on their operations. Bigger providers do and this risks creating a market imbalance that the regulator should be mindful of.

Some would say this means firms need their trade bodies now more than ever, otherwise they risk falling foul of the latest change in regulatory approach without even noticing the goalposts have moved. That may be true but it is no argument upon which to justify a trade body’s existence.

Principles-based regulation, delivered well, should see firms benefit from the promised regulatory dividend of less interference in well-run businesses. For firms to get there, it is important that all know what the steps are and when the regulatory burden shifts.

Chris Cummings is director general of Aifa

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