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Tyrie calls on advisers to prove cost of regulation to clients

Treasury select committee chair Andrew Tyrie says a “robust” figure on total regulatory costs can be used to hold the FCA to account.

Influential MP and Treasury select committee chair Andrew Tyrie is calling on advisers to provide evidence of the total cost of regulation in order to better hold the FCA to account.

In an interview with Money Marketing, Tyrie says the profession needs to be more “vigorous” in demonstrating the true cost of FCA supervision.

Tyrie says he wants to see a regular, “robust” figure on the total cost of dealing directly and indirectly with all regulatory demands, not just FCA fees. This would need to include the cost of compliance, fees relating to the Financial Ombudsman Service and Money Advice Service and Financial Services Compensation Scheme levies.

The figure would then be made available to Parliament, regulators and consumers and used as a benchmark against which the FCA could be held to account.

Tyrie says: “The industry has not been as vigorous in substantiating claims that higher costs and other problems are created by regulation.

“It could do much more by monitoring compliance costs carefully. Not just the narrow sense of maintaining a compliance department but the full cost to the business of engaging with the regulator at every level.

“The industry has not done enough. As long as the regulator feels no counter-weight, there will always be the incentive to make that one extra demand.”

He adds: “Regulation is not a free good, the customer always ultimately pays.”

Apfa director general Chris Hannant says: “To make any figure robust we would need quite detailed input from a number of firms but it is an interesting challenge and we will look into it.

“I would not want to create further burdens on members but if we can find a simple way to capture the information then it could be useful.”

Jacksons Wealth Management managing director Pete Matthew says: “It is a reasonable idea because it will give us ammo. Advisers can often whinge about what is happening to them but when it comes to doing something about it there is more reticence. It would be an interesting exercise.”

Earlier this month, FCA chief executive Martin Wheatley rejected calls to compensate advisers after Money Marketing revealed the fee block containing most advisers had been overcharged by £118m over the past five years. 

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Comments

There are 11 comments at the moment, we would love to hear your opinion too.

  1. That’s quite a simplistic statement by Mr Tyrie. You’d need to separate out the cost of complying with EU-level regulation from domestic, because neither the regulator nor indeed HMG have any control over the former. Then threre’s FATCA etc coming out of the U.S. which impinges on UK firms too.

    And I suspect that once you’ve stripped out MiFID, AIFMD, CRD, money laundering and the rest there’s not actually that much room for manoevre in UK regulatory costs.

  2. I understand Adam Smith’s concern, but Tyrie is on our side and we should respond. By simply totting up all the regulatory and consumer protection ‘stuff’ that currently exits, it will be sufficient (providing enough firms/members participate) to demonstrate to the Regulator how much all of this is costing the CLIENT.

    On a slight tangent, we note that Martin Wheatley has rejected calls to compensate firms who have erroneously paid too much in fees to the FCA. When one is up against such imperious obduracy is it any wonder we have little faith in the Regulator.

  3. This is an excellent idea. Once captured the next step should be to explicitly show / load this onto Adviser Charging. The challenge is to ensure this isn’t seen as a threat to the FCA bringing in appropriate regs but rather encouragement to all regulators to keep in mind that there is an explicit cost to what they do. It might even encourage the bonfire of the regulations mentioned by Cameron

  4. goodness gracious 30th January 2014 at 10:59 am

    I suppose both Andrew and me had the same economics master at school and I am wholeheartedly behind him. But what about the costs of writing and producing huge reports that clients don’t read and are of little use as a defense document anyway.
    Why cant we just write notes on the client file as stockbrokers do if recommending investments. Why do pensions and investment bonds have more hoops to jump through. We know that these regulation about report writing has done nothing to reduce the incedence of fraud and other questionable behaviours, in fact it is often used to attempt to justify the unjustifyable.
    If you want to stich up a client for your own personal gain, no amount of regulations will prevent you, there is always a way around it.
    Giving compensation, paid by the honest to compensate those who had money extracted from their investments by dishonest operators is in itself dishonest and leads to more dishonest operators. It must be stopped. Let all ombudsmen have to obey a court of law’s general principles when making a decision. Access to a small claims court for free should be the means of obtaining compensation rather than a vast army of form fillers making up rules that are considered ‘fair’ but always place the burden of proof onto the provider, not the complainant.

  5. Whilst I kind of understand where Adam Smith is coming from I don’t understand why we should be spitting out regulatory costs from other places. Surely we should be reporting the total regulatory burden. Only with this information can the Government and more importantly consumers decide whether all of the burdens placed on financial services by all of the regulatory organisations are value for money.

    My guess is that they are not.

    Let’s kick off with an easy one. For Network members the cost is around 10%-12% of turnover. That is just the start. I would suggest that about 40% of the work we do for most clients is there to satisfy the regulator.

  6. Whilst I think it is always possible to analyse in more detail, knowing how much regulation costs makes good business sense – if only so you can show your customers what percentage of their fees goes on it (and how much they are forced to pay the FSCS to deal with the mistakes of other firms).

    Next year the population as a whole will get far more votes than advisers alone.

  7. You could argue the cost of everything we do is down to regulation. Without it we wouldn’t need factfinds, reports, research, records. All word of mouth, simple!

  8. KPMG reported last year that wealth management CEOs estimate regulation consumes 10 to 20 per cent of turnover, which could equate up to 50 per cent of profits. It is difficult to envisage the Government allowing this state of affairs in any other industry, where simply complying with the rules for doing business halves the industry’s profitability.

  9. This is an impossible calculation as regulation is inbuilt into everything the FS industry does. As its principles based, any time we interact with the public we are effectively adhering to these principles. For example, is the information you give clear, fair and not misleading? If so, then anytime you give any information you are complying with regulation.

    The cost of regulation is therefore the total cost to the business (unless of course your cutting corners!).

  10. If the TSC could not get the FSA to comply not sure how we lowly IFAs are supposed to bring the FCA to book. By my reckoning with the announced FSCS increase of 34% on the iFA sector this year that transposes to a 40% increase taking in to account reduction in numbers. A simplistic approach as each firm’s fee will vary according to the relevant variables but suspect a good approximate if we believe there have been an overall reduction in adviser numbers of around 20%.

  11. The TSC holding the FCA to account? Give me a break. The TSC asks a few pointed questions. The FCA stonewalls by insisting it needs all these hundreds of millions of pounds of OPM to carry out its job effectively (even though it manifestly doesn’t). The TSC tut-tuts a bit but has no power to get anything changed, so nothing does.

    Which is why we need an Independent Regulatory Oversight Committee with unassailable powers to instruct the FCA: This is wrong and……………..

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