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Transparency on trial

Early next year, the FSA will publish a discussion paper on the purpose and possible effects of greater transparency.

This comes after the Information Commissioner this year ruled three times against the regulator over decisions not to disclose inf-ormation under the Freedom of Information Act 2000.

In September, the FSA appealed against the commissioner’s decision that it should publish the names of the Lautro 12 – firms which mispriced projection rates on mortgage endowments. Just last month the regulator also declined to reveal the names of firms which performed poorly in an equity-release mystery-shopping investigation.

The FSA claims it is committed to the principle of openness but believes it should not be forced to disclose the names of firms under investigation.

It argues that it would be unfair to name firms and individuals it is investigating until any disciplinary action is taken.

Speaking at the FSA’s treating customers fairly conference this month, retail markets managing director Clive Briault suggested that transparency could endanger the FSA’s relationship with adviser firms. He said: “If we were to operate on the basis of complete transparency, firms might be less cooperative with us.”

CBK principal Peter Chadborn has sympathy for the FSA’s position but he says transparency could improve its relationship with IFA firms.

Citing the example of the Lautro 12 case, Chadborn says naming the product providers would improve trust between the FSA and advisers, who were widely blamed for endowment misselling.

He says: “The blame was laid firmly at feet of advisers but if we could see the FSA chastising other parts of the industry which fell short of expectations, that would be a boost to confidence.”

Chadborn believes transparency could also improve the practices of adviser firms and companies could be named for not conforming to treating customers fairly, for example. He says: “Provided it is not overkill, there is nothing wrong with it.”

Aifa deputy director general Fay Goddard believes the regulator should be open and transparent but it is right to exercise caution in determining what should be disclosed. She says firms should not be unfairly prejudiced before their guilt is proven and the FSA should not have to reveal who it is investigating before “the trial comes to an end”.

Goddard says: “There has to be a balance between what can and cannot be disclosed. We do not want a situation where the FSA has to disclose every firm under investigation before they have been proven guilty.”

Some fear the FSA could end up in a position where it has to disclose information about everyone it is investigating and could face legal action from firms which have been named and shamed.

The FSA’s decision to publish a discussion paper rather than proffering an edict on transparency has been welcomed. Informed Choice director Martin Bamford says it is a positive move that the FSA appears to be stirring up a frank debate. He says transparency is an important principle that the FSA should adhere to.

He says: “If there is something serious underlying a case, then consumers have right to know.”

Bamford also considers that the FSA should disclose the names of those who performed with merit as well as those that did not.

He says: “There is a risk that firms would be more nervous about disclosure but they could also get a better understanding of what is good and poor practice.”

Wilson Dean Financial Services director Nick Lincoln thinks the FSA should not be concerned that transparency might prejudice the business interests of individual firms, provided it is confident in its actions.

He says consumers have a right to know if a company performed well or poorly.

Lincoln says: “Disclosure could be very good public relations for firms. As long as FSA exercises are not done to catch firms out, then information should be released or the public could be concerned that something is being kept back from them.”

Bamford believes there needs to be consistency and clarity in the FSA’s approach and it needs to be clear on criteria. He says: “It has to be transparent in a fair manner, and disclose everything or nothing.”

Chadborn says: “I am all for full disclosure when it comes to us telling the client what charges they will face as well as for naming and shaming where advisers fail on TCF. But transparency works both ways. I would want the FSA to name and shame the Lautro 12. In any aspect of financial services, inconsistency does not instil confidence in advisers or clients.”

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