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Will MPs finally be able to hold the FCA to account on costs?

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Treasury select committee chair Andrew Tyrie gets plenty of complaints from advisers and the wider financial services sector about the costs of regulation.

And unlike many politicians is he canny enough to understand these costs don’t just disappear into a black hole. They are passed on to clients in the fees they pay for products and advice.

The problem Tyrie has had is attempting to quantify all the direct and indirect costs of regulation and then to monitor the burden and benchmark it both over time and against other professions.

In an interview with Money Marketing in January, Tyrie called on advisers to provide evidence of the total cost of regulation in order to better hold the FCA to account.

Tyrie told our reporter he wanted to see a regular “robust” figure for 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 services associated with dealing with the FCA, alongside fees relating to the Financial Ombudsman Service, Money Advice Service and Financial Services Compensation Scheme levies.

We decided to take up the challenge and worked with Aviva to piggyback on its regular comprehensive adviser research by asking a new question about the total costs of regulation to adviser businesses. 

We’re bombarded with research of the adviser sector, some with very low sample sizes and filled with leading questions. But Aviva’s research of 1,500 advisers is among the best I’ve seen.

We asked advisers what percentage of their turnover was spent on all regulatory costs and the figures we got back were, in Tyrie’s words, “concerning”.

Over two thirds of advisers say such costs make up 10 per cent or more of their turnover, with 15 per cent of advisers spending over 20 per cent or more of turnover on regulation.

Tyrie says describes the research as “an important piece of work”. “With such a high proportion of firms concluding that more than 10 per cent of their turnover is accounted for by regulatory costs, by implication that is more than 10 per cent of what we all pay as consumers for these services,” he adds.

In this week’s Money Marketing magazine we compare advisers’ regulatory costs with other professions such as lawyers. The differences are huge. 

Apfa has also been preparing its costs of regulation index which will hopefully help politicians to hold the FCA to account.

Regulatory costs are a tax on consumers of financial services. They are a necessary tax to ensure consumers are not ripped off, but far too little work has been done to monitor these costs and to ensure there is enough discipline being applied within the regulator to keep them in check.

Hopefully armed with this new research and Apfa’s cost of regulation index, Tyrie and his committee will finally be the ones to apply some pressure to help ensure consumers are getting value for money from their regulator.

Paul McMillan is group editor at Money Marketing- follow him on twitter here

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Comments

There are 4 comments at the moment, we would love to hear your opinion too.

  1. Derek Bradley ceo Panacea Adviser 2nd May 2014 at 8:28 am

    The key observation here is “Hopefully ……………Tyrie and his committee will finally be the ones to apply some pressure to help ensure consumers are getting value for money from their regulator”.

    I fear as an industry we will be disappointed, regulators have no concept of cost or benefit. A quick read of the Regulators Code will put to bed any notion that they take the slightest note of cost, caring little for the impact these costs have on those they regulate, let alone the consumer in who’s name the costs are incurred.

    I would very much like to know what costs are incurred by provider firms are too, the total will be massive and again will end up parked at the consumers door.

    The battle is lost on regulation cost, it was lost long ago. Regulation is an industry. But regulation is self-perpetuating, a real life version of perpetual motion that pays a lot of money to those for whom that career path is chosen. For example, over the past decade, the average pay per employee at the FSA was around £78,000.

    We all know about the failures of regulation in financial services, but would UK plc and its population (now commonly referred to as ‘vulnerable consumers’, ‘stressed commuters’, ‘long suffering motorists’ or ‘hard working families’) be better off as a result of much reduced regulatory action. Or see it replaced with that all important mix (of fast diminishing human attributes that regulation has rendered idle) common sense, caveat emptor and intuition?

    Here is just a sample selection of regulators,

    http://panaceaadviser.com/main/st9481/Is+regulation+breaking+UK+plc%3F.htm

    I think many reading this would see confusion, failure, cover ups, unintended consequences and huge spends seeing zero benefit for everyone except those that work in regulation.

    Back to the drawing board I think Mr Tyrie.

  2. Julian Stevens 3rd May 2014 at 2:22 pm

    Unless or until Andrew Tyrie heads up a Committee with the power to DIRECT rather than merely put to the FCA suggestions that it ought to make changes to the how it operates and what it costs, what hope can there be for anything to change? Look what happened when he suggested to Martin Wheatley that there’s a compelling case for the FCA to reimburse intermediaries for the £118m we’ve been overcharged by the FSA over the past five years. Martin Wheatley effectively gave Andrew Tyrie a V sign and just said NO. End of. Attempts to reason with or to persuade the FCA on such issues or to appeal to any sense of fair play are flatly rejected.

    Can’t Andrew Tyrie see this? And why is APFA making no attempts to get this obviously and totally unacceptable state of affairs changed?

  3. Derek Bradley ceo Panacea Adviser 6th May 2014 at 9:11 am

    The TSC should be asking why no refunds are forthcoming, especially when the ‘victims’ are mostly small ‘vulnerable’ businesses who do not have lots of reserve funds as they have paid more than they should to an inept regulator over a number of years?

    Al Capone reckoned that “Capitalism is the legitimate racket of the ruling class”. I wonder what his view on financial services regulation would be?

    As an observation, Chris Hannant said, when asked about this at a Panacea event in January, that everything was “sorted” on this matter. I assume it is not and will not be?

  4. Julian Stevens 6th May 2014 at 1:07 pm

    Andrew Tyrie put to Martin Wheatley that there’s a strong case for reimbursement. Wheatley said NO. And that was that.

    In what way does Chris Hannant consider the matter to be “sorted”?

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