By Matthew Vincent
Published: June 18 2010 19:27 | Last updated: June 18 2010 19:27
Few will mourn the passing of the Financial Services Authority (FSA). In fact, if anyone at the City regulator is hoping to read a eulogy, I’d suggest EJ Thribb – Private Eye magazine’s fictitious 17½-year-old modernist poet/obituarist in residence – as the only likely author. I can imagine him penning something along the lines of:
So. Farewell then,
FSA,
Savings supervisor.
“We are
conducting a review.”
That was your catchphrase.
Keith’s Mum
Is still waiting
For her endowment
Compensation.
To a 17½-year-old – still a year away from the grown-up reality of a bank overdraft and mounting debt – the FSA is a largely theoretical entity. A sequence that runs FIMBRA, LAUTRO, IMRO, FSA, CPMA is more likely to summon memories of last week’s Maths A-level paper than a potted history of regulatory failures in the consumer finance industry.
To a 37½-year old, however – or anyone older – those letters show that the FSA is the fourth in a long line of ineffectual City regulators (at the risk of showing my age, I recall that those predecessors covered Financial Intermediaries, Managers and Brokers, Life Assurance and Unit Trusts, and Investment Management). Now the sequence is being extended to a fifth: the Consumer Protection and Markets Authority (CPMA).
So, as someone who is clearly very much Thribb’s senior, my instinct is to bury the FSA, not to praise it. However, I do believe that some good will come of its passing.
Encouragingly, on the very night that he might well have hissed “Et tu, George?”, the chairman of the expiring FSA, Lord Turner, issued a deathbed mea culpa: “On retail customer protection, the FSA has recognised the need for a shift in our past approach, moving to the more interventionist approach which we set out in our recently published Retail Conduct Strategy.”
This strategy, published in March “signals the end of ‘reactive regulation’ where, historically, the FSA waited for clear evidence that a product had been mis-sold and consumers harmed before it took action and relied principally on risk disclosure information at the point of sale to avoid mis-selling occurring.”
Lord Turner promised that “the new CPMA will have a strong focus on this challenge”.
In other words, the regulator is finally going to stop acting like a lifeguard who only gets his trunks wet after a swimmer with faulty water wings goes down a third time.
Relying on risk disclosure at the point of sale – ie expecting an 18½-year-old insurance salesman to admit that he is selling unsuitable products just to earn commission – only succeeded in exacerbating the mortgage endowment, split-capital investment trust, precipice bond, pension and structured product mis-selling scandals of the past 15 years.
Under the CPMA, there will be active intervention in the development of retail products and “a greater willingness to test outcomes through mystery shopping and on-site visits”.
But what we really needed to hear this week was that one other major FSA strategy will also be adopted by the new regulator: the Retail Distribution Review (RDR).
This is the policy shift that will most benefit private investors, by banning the payment of upfront commission to financial advisers, and insisting that independent advisers recommend products from the full range on the market.
According to one independent financial adviser, George Osborne had promised that these measures would be implemented, whether there was an FSA or not. He quotes a letter from the shadow chancellor in September 2009 saying: “The RDR is a matter for the FSA and as a consumer focused initiative, it will pass to the Consumer Protection Authority as the body which will take over the regulation of the IFA community. So the change in the regulatory structure should not affect neither the progress of the RDR nor the timetable [sic]”. Given the confusing triple negative, it is perhaps understandable that some concerns remain.
But a quick phone call to the RDR’s biggest supporter, Andrew Fisher of advice firm Towry, has allayed my fears. On Thursday, he was speaking at an event with the current FSA chief executive, and transitional CPMA leader, Hector Sants. He said: “Hector is absolutely not changing [the RDR], he is delivering it in the same way, to the same timetable – it will probably have new
impetus as people are saying we have to get it right this time.”
We really do – for our own sake, and the sake of the 17½ year olds about to become financial consumers for the very first time.
matthew.vincent@ft.com
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From FT.COM published on June 18 2010 19:27 | Last updated: June 18 2010 19:27
