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The Park Row debacle shows regulation is out of control

Many individuals are currently struggling to gain FSA permission to perform a controlled function.

Take former Park Row advisers for example, the high number of column inches and comments on the Money Marketing website regarding this issue proves it is a very emotive subject.
 
There are a number of issues here, the main one is the old ‘sponsoring’ firm which has purportedly been unable to train former direct sales people when thrown into an alien independent environment and bring them up to the same level as an experienced IFA.

As far as Park Row is concerned the serious issue is the KPMG file review exercise which in my humble opinion is fundamentally flawed because (a) it bases many declarations of ‘inappropriate’ advice upon charges alone and (b) it assumes that the AR was responsible for the content of Terms of Business and Reasons Why documents. Also, we have the blunderbuss approach from the FSA permissions department which uses all this ‘intelligence’ to, in effect, permanently ban the individuals from continuing to advise consumers.
 
This isn’t a matter of ‘reauthorisation’ because ARs are exempt from authorisation. This is a matter of risk and as networks are the highest category risk on the FSA radar it is clear that those who have not demonstrated that they are capable of properly supervising their ARs and ensuring they are trained to meet the ‘Fit and Proper’ requirements of an Approved Person will not be allowed to take more on the books. This is particularly the case when the standard of advice has been shown to be poor in the previous firm and the adviser has been unable to demonstrate that they are indeed capable of meeting the FIT requirements. However I am very concerned by what I perceive to be a flawed file-checking exercise and the FSA’s unquestioning reliance upon the ‘intelligence’ it has gathered.
 
When considering the impact of the new ‘intrusive supervision’ regime at the FSA it is worth pointing out that tests of competence in life are many and varied, the driving test is one example where failing to pass does not prevent you from driving for the rest of your life, you are allowed to drive while supervised and can have as many attempts at passing the test as you wish, or can afford.
 
You may be wondering how a one man band can possibly survive in this new environment let alone start up in business without someone ‘Fit and Proper’ in the passenger seat. Society is in dire need of regulatory balance, I see none.

Evan Owen is a regulatory consultant

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Comments

There are 9 comments at the moment, we would love to hear your opinion too.

  1. Julian Stevens 14th June 2010 at 4:07 pm

    Why are networks perceived by the FSA to represent the highest regulatory risk? I suspect that most networks would take some umbrage at such a sweeping assumption, not least because the FSA charges them the full regulatory fees for each and every one of their RI’s and then conducts its regulation by proxy, with the handy economy of merely spot checking selected files. In short, the FSA charges full whack but gets the network to do most of its regulatory work for it.

    For my own part, I consider myself more fit & proper than if I were directly authorised, for the simple reason that, as a member of a network, I have behind me technical and research resources that I would be unable to bring to bear on my own as a small trader.

    Furthermore, I attend all our network’s training seminars, not least on the subject of compliance and all the paperwork on a proportion of all the cases I transact each month are called up to our network HO and gone through with the proverbial fine-toothed comb.

    So, as a member of a (good and well resourced) network, I think I have reasonable grounds to argue that I am less of a regulatory risk than many directly authorised firms, not least because I am subject to a much higher degree of ongoing regulatory supervision.

    If Evan is correct in his statement that the FSA regards networks as representing the highest regulatory risk, this may well suggest that once again the FSA has got in wrong.

  2. It does seem so unfair.

    100 people earn over £100,000 plus per year and stop others from earning anything.

    The FSA have been found guilty of regulatory Failings should we stop salaries for 6 months whilst investigations are carried out?

    A sensible approach would be to register the advisers but first let them email the case to compliance before sign off. This is common with a lot of companies now for new starters. Advisers could then earn a living and look after clients compliance could be satisfied.

  3. Michael Fallas 14th June 2010 at 4:43 pm

    If the FSA continues to regulate everything that moves it will eventually destroy many good businesses and hopefully itself.

    Unanswerable, unaccountable, expensive and totally flawed, but they cannot see that or simply don’t care as they get well paid anyway regardless.

    In the Queens speech this new coalition Government said they would give us “Freedom, Fairness and Responsibility”, seems they failed to include the FSA in that one.
    Keeping such an organisation in control is a massive mistake.

    Good regulation should be virtually unnoticeable and not affect the outcome for good advice and a pleasing experience for those that seek advice.

    Who regulates the FSA I wonder ?

    If the FSA were like BP how much would they have to pay out in compensation for all their mistakes?

    Maybe someone should work out the total cost of the FSA mistakes to date, that should make interesting reading !!

  4. Robert Donaldson 14th June 2010 at 4:59 pm

    Review of Health and Safety Legislation

    It is interesting to note that the new coalition have announced a review of health and safety legislation yet the FSA is not reviewed which is to the detriment of everyone’s health and safety.

  5. Julian, if you want to be an IFA for a bit longer perhaps the time is right to go direct, before your network has a ‘special’ visit which might be conducted in the same fashion, the file reviews are farmed out by KPMG to a very shadowy and unaccountable firm. The regulators lap it all up with gusto, or is it that they don’t have a clue?

  6. Just had a thought, during one meeting with the FSA it was suggested to me that ‘networks provide a service’, it also appears that many, if not all, appointed representatives believe this is so.

    The networks have been quite clever; it started with Ken Davy when he proudly announced that the regulator agreed we could replace “Appointed Representative of” with “Member of” on our stationery, this was supposed to look better and set us apart from the appointed reps of the life offices.

    I believe there is a fundamental misunderstanding on the part of the FSA, the Appointed Representatives Regulations have been quite clear since 1987 where the responsibility lies for all acts or omissions, all training and competence, it lies with the network and not the AR so for the FSA to penalise an AR for doing what the network’s compliance manual told him to do is seriously flawed and unfair. When every piece of business is monitored by networks I find it incredible that the regulators can prevent a former AR from trading forever after.

  7. There are a lot of very fair points being raised here.

    I was involved in vetting work way back when the regime first came in (then “LAUTRO RB41”. The idea was to stop rogue advisers hopping about from firm to firm, which was and still is a good idea.

    However, this seems from the outside to have verged towards unfairness. The advisers concerned were working within Park Row procedures which they’d have had little influence over. Perhaps some more objective tests are needed such as FOS records and persistency (all of which we were using back in 1993).

    There is also a “black hole” over the appointment of S166 Skilled Persons. These posts are never advertised, hence you get a firm of accountants carrying out the work not true experts. (I heard an apocryphal story of one such firm producing a “skilled” persons report which referred to the wrong chapter of the FSA rules – not exactly top quality.

    Perhaps since the Fred Goodwin debacle (Alastair Darling saying “we have to make sure people running these organisations actually know what they’re doing”) the FSA have gone too far in the other direction. OK the old regime where you were authorised if you had a pulse was wrong, but some degree of intelligent insight into the real risks posed by advisers is needed now.

  8. Steven Farrall (Adviser Alliance) 15th June 2010 at 11:39 am

    ‘Regulation’ as a concept is fundamentally flawed. In the UK under New Labour it was deliberately morphed into ‘nationalisation by regulation’. This is based on simple socialist principles that there is one individual hwo knows bets what is right for everyone else. This ‘boss’ then sets up inflexible bureaucracies to enforce his will. Clearly it is risible to assume that One Person Knows Best, and so it has proved with the epic banking failures. The FSA will not, because culturally it cannot, that the problem is always regulation, it is never the solution.

    This is the case here. The FSA having (predictably) failed, has resorted to metaphorically shooting people, and doing even more of what didn’t work previously. This is therefore a cultural issue. The only solution is the scrapping of the FSA, and the establishment of a small efficient simple oversight service, preferably funded by an open and explicit product levy transparent to all clients/customers. In nearly every instance, we the public, will be best able to decide what is best for us and be able to access enough information to ensure that we are not ignorant of what we are buying. For IFA’s the commercial PI market (PI being the only compulsory requirement) will decide very quickly who is good and who is bad and the supply will adjust.

    The Park Row debacle is just a symptom of the overall malaise of dysfunctional statist regulation.

  9. I forgot to mention that there are diploma qualified and chartered financial planners caught up in this mess,many of whom were with Park Row before Royal Liver ever got involved.

    When you consider that it takes hours for an adviser to create a file from fact-find to RW letter and there were thousands of files you have to wonder how many file checkers were working on behalf of KPMG and how they could cope with the mountain of paperwork, I head that some decisions have been overturned and that letters of apology were sent to the clients, if that is true than the whole concept of “skilled persons reports” is something which must be examined in public.

    I also hear that the FSA has insisted upon similar scrutiny of a number of large firms.

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