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Treading the regulation boards

Despite the fact the FSA is often considered as being the single financial regulator, it is only one of many bodies which play a role in overseeing the industry.

It is true that at N2 the FSA will replace a number of the regulators currently controlling the various aspects of the industry, such as the PIA, but there are a number of other organisations which will continue to have significant influence.

These other bodies often work in cooperation with the FSA or cover areas where the FSA&#39s mandate does not reach. There are other regulatory authorities, voluntary trade associations and the Government itself. Only when these other bodies are brought into the framework is the whole regulatory picture complete. Each of them can have have an impact on IFAs&#39 businesses.

With the introduction of stakeholder, the role played by the Occupational Pensions Regulatory Authority has been substantially increased. As its name implies, this body has control over employer group pension schemes.

As far as the Government&#39s flagship stakeholder pension is concerned, advice, product design and marketing are regulated by the FSA while Opra controls the implementation and administration of stakeholder. So when it comes to handing out the £50,000 fines to companies failing to offer their employees access to stakeholder, it will be Opra, not the FSA, which will be cashing the cheques.

There are several types of financial products which are not included in the Financial Services and Markets Act and so remain outside the FSA&#39s remit. The view has been taken by the Government that either these types of products are more straightforward and less risky or they are not investment-linked, so the same level of regulation scrutiny is not required.

Instead, general insurance, private medical insurance, critical-illness policies, income protection, unemployment insurance and term insurance fall under the remit of the General Insurance Standards Council. The FSA is not involved in the sales, marketing or advising on these types of low-risk products.

An FSA spokesman says these types of products involve paying a sum, usually on an annual basis, with the hope that something will not happen. This is why the compliance burdens on companies that design and sell these products are much less than on firms that fall under the FSA&#39s remit.

There is an ongoing debate about whether the authority of the FSA should be extended to cover these products but so far the arguments have fallen on deaf ears.

On December 1, the Office of Fair Trading will continue its important role, especially when it comes to ruling on competition issues. On rulings over mergers and takeovers and interpreting certain policy issues, the OFT can have a big impact on the regulatory structure of the financial ser- vices arena – especially if something is viewed as anti-competitive.

The debate on polarisation is a prime example of how influential the OFT is. The entire process, which has already seen partial relaxation and potentially wholesale reform of the regime, was triggered by an OFT report by the body in 1998 which claimed that polarisation was significantly anti-competitive.

Another case worth pointing out was the Competition Commission&#39s ruling disallowing the Lloyds TSB attempted takeover of rival high-street bank Abbey National in July.

The decision was made because the giant organisation resulting from the merger would have controlled too much market share and effectively ended any further speculation of high-street bank mergers.

Trade associations also play a regulatory role in some respects, although strictly on a voluntary basis. Virtually every trade body has a code of practice for members but the only penalty that members of such associations as the ABI, the CML or the British Bankers&#39 Association face if they fall foul of the codes is to be publicly named and shamed by the association.

Given this lack of teeth, it is not regulation in the strictest sense of the word but, for most financial services providers, the prospect of being publicly rebuked by an influential trade association is enough to make them respect the code of practice.

The Treasury is still the ultimate authority responsible for the financial services industry. It has the power, using legislation, to expand or shrink the mandate of the FSA.

Saying that, it is rather unlikely the Government will ever act to cut back the regulatory clout of the FSA. It is much more likely that any action taken would be to add more responsibilities.

It can act in other ways too. Direct product regulation in the form of Catmarks is a concept the Treasury favours. Already there is a kitemark on mortgages, Isas and stakeholder. Long-term care is another product likely to see the application of some form of Catmark. If the Treasury decides to expand the Cat concept more quickly, it will be up to the FSA to implement it.

So the FSA, despite appearances, does not patrol the regulatory skies single-handedly. It has help in keeping an eye on the industry, with several other bodies playing significant roles.

This working relationship will continue in the post-N2 world. Even though the commonly pedalled line is that firms will have one regulatory port of call, in reality, they will have to keep an eye on these other authorities as well.


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