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Twin peaks regime will add extra layer of costs

Andy Love
Andy Love: ’I am not clear if they have addressed how we can still have a platform that delivers these products to a wide range of people’

The switch to a twin peaks regulatory structure will mean increased compliance costs for firms, says Treasury select committee member Andy Love.

In an interview with Money Marketing, Labour MP Love says the fact that some firms will be regulated by two bodies will mean higher costs.

He says: “Inevitably, this whole process leading to the change in 2012 and the twin peaks structure itself, where organisations will not be accountable to one body but to two, will undoubtedly lead, in my view, to higher costs.”

Love says the move from light touch to more intrusive regulation was always going to increase costs. He says: “Trust in light-touch regulation has been shattered by the events of 2007 to 2009 and we needed to have more appropriate regulation. That was always going to be inherently more costly but I think what we have done in the move to twin peaks is add an extra layer.”

The TSC has being trying to establish the expected cost to industry of the changes but has not been able to get a definitive answer.

Love says: “Nobody challenged the Treasury’s expected direct cost of the switch being £50m but nobody appearing before the select committee has been clear that was an accurate figure. I think there was an acceptance that the indirect costs would be very significant.”

On the RDR, Love says he understands IFAs’ concern over qualifications but the aspect he is more concerned about is the removal of commission.

He says: “The major issue has always been the problems created by the incentive structures that have been built into the IFA product range, how that has led to some significant problems and how we can change that to protect the consumer and ensure we have distribution of what is, in essence, a good range of consumer products that people need.

“I accept that the FSA appears to have addressed concerns expressed about the things that have gone wrong with the incentive structures. What I am not clear is if they have addressed how we can still have a platform that del- ivers these products to a wide range of people.”

Labour’s last Budget in March, raised the threshold for stamp duty to £250,000 for first-time buyers for two years, aiming to stimulate the housing market. Love suspects the move may not have done as much as anticipated.

He says: “I do not have any evidence for it and we need to wait and see the figures but while I am sure it would have helped at the margins, assisting first-time buyers to gain entry and easing some of their problems, my gut feeling is it will not have been as helpful as we hoped it would be.

“When it was introduced, the difficulties that first-time buyers were facing were at such a level it would be difficult for the holiday to make a tremendously big difference.”

In an appearance before the Treasury select committee last month, FSA chairman Lord Turner said mutuals should “stick to their knitting”, adding that allowing the mutual sector to move beyond prime real estate lending was “the biggest mistake” the FSA made.

Love says he has some sympathy with the view but more needs to be done to encourage diversity of structure in financial services. He suggests that when the Financial Services and Markets Act is looked at next year to help with the switch in regulatory structure, the regulator should have an objective to have regard to diversity.

He adds that under the Financial Service Compensation Scheme, building societies pay a disproportionate amount toward the scheme, which Love thinks could have been avoided with a diversity objective.

He says: “If they had to have regard to diversity, the FSA may have thought twice before introducing something which, in most people’s view, has had an adverse impact on building societies.”


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