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This week in Regulation

Bashing the FSA’s treating customers fairly regime would appear to be all the rage once again. It seems everyone is straining at the leash to knock the jewel in the FSA’s principles based crown, from top industry bosses such as Park Row chief executive Peter Sprung, to the Law Society.

Now the Tories have waded in, with shadow Treasury financial secretary Mark Hoban backing the Law Society’s recent attack on the principles based regime for leading to an ‘unacceptable vagueness for firms’ and leaving firms unsure how to comply.

Hoban said greater consensus between the regulator and the regulated was needed if the TCF regime is to be successful. He argued the FSA needs to do more to make firms understand their responsibilities while ensuring that calls for clarity do not cause the regulator to revert to prescription.

But striking the right balance between principles based regulation and prescription is an unenviable task. No matter how much guidance the FSA gives to firms, there will always be those that criticise the regime for being too vague and confusing; the argument being that prescription may lead to more paperwork, but at least you know where you stand.

Much of this criticism is facile and off the cuff, stemming from firms that complain about weighty regulation but have not made any effort to engage with TCF. There is often a clear agenda behind criticism, with one commentator suggesting, for example, that the Law Society laid into TCF because it is more difficult to litigate within a principles based framework.

But there are also numerous firms which are more than willing to ditch prescriptive rules for principles, but are understandably reticent about making this leap of faith. The FSA needs to do more to persuade these firms that TCF is not a nebulous, pie in the sky concept but a real initiative that can make firms’ lives easier in the long run.

Judging from the reaction of advisers to a speech by FSCS chief executive Loretta Minghella at Money Marketing Live, there appears to be growing support for a product levy to help fund the compensation scheme. One adviser’s suggestion that consumers should have to pay for the protection afforded to them by the FSCS was greeted with baying of approval from many in the audience. Minghella countered that she believed it would be far too difficult to administer. She argued, quite plausibly, that advisers were selling their advice, not the products themselves. An adviser might reasonably advise a customer to move between different products. Does that mean consumers should have to pay multiple product levies? If there are multiple levies would the customer then be best advised to stay put?

Minghella said if advisers feel strongly about product levies being the way forward, they need to engage in the consultation process. Advisers must put forward a coherent and well structured argument for pinning the cost for the FSCS on their consumers who, arguably, already pay a product levy through stealth commission charges.

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