IFAs must look to gain from Libor scandal
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The City of London has developed an alarming, self-destructive streak, to the extent that it is actually jeopardising its own status as one of the world’s premier financial centres. The risks to the UK economy, but particularly London and the south east of England, are huge.
The Libor (London Inter-Bank Offer Rate) and interest swap scandals represent a depressing new low point for UK banking. They are sure to lead to stricter regulation. But the errant behaviour of many of the UK’s high street banks carries another layer of risk for IFAs. Adviser leaders need to be very careful that advisers don’t get caught by the inevitable regulatory backlash.
Adviser leaders need to be very careful that IFAs don’t get caught by the inevitable regulatory backlash after the Libor scandal
A great deal remains unknown about both the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) – the regulators that are due to replace the FSA. There is now a significant risk that the legislation informing the structure and strategy of both organisations could be amended hastily by angry politicians.
Hopefully this will not happen and wiser heads will prevail. But whatever the statutory obligations and ‘have regards’ in the financial services bill, the new regulators are going to talk and act very tough.
This might not be a bad thing, of course, if the FCA and PRA anticipate and prevent mis-selling and other even more outrageous market manipulations. Another thing that keeps regulators awake at night is a worry about whether the business models of financial firms stack up. Regulators fear that many malfunctioning, pre-crisis business models cannot be successfully adjusted to the post-crisis ‘new normal’.
Such fears begin to look justified as more and more information emerges about the culture at many of the banks. The FSA is already considering what a successful bank that serves society looks like, especially in a slow-growing economy with tougher new regulation.
Regulators are also worried about insurance companies and fund managers, both sectors which are facing significant capital challenges, though they are of less immediate concern.
Investment advisers, however, are in a unique position. The RDR and other edicts around risk and investment have provided them with some kind of certainty with regard to their regulatory status.
In effect, the FSA has already made an unprecedented intervention by banning commission and setting out the model investment advisers need to follow. Could this be turned to IFAs’ advantage?
After the RDR, investment advisers will be operating on a model that has been partly devised by the regulator, so perhaps adviser leaders can start to make a case for the regulator to do all it can to allow that model to work. They may even be able to argue that it is beholden on the regulator to preserve as many surviving IFA businesses as possible.