Regulation  

50 years of regulation

The FSA’s track record in sorting out mortgage endowment complaints and its role in Equitable Life did not enhance its image but the death knell for the FSA has been the banking crisis.

As new financial services legislation now trundles through Parliament and we move, probably in 2012, to the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) the UK moves to a ‘twin peaks’ model - a conduct regulator and a prudential one, but with knobs on.

It will still be statutory regulation but a small element of self regulation has been added back through the need for advisers to be overseen by a professional body recognised by the regulator. A more fundamental change seems to be under way that is not dependent on the new legislation and that is the interventionist approach of the regulator.

For the past 25 years the philosophy has been that innovation and competition will automatically work in the interests of consumers. Although lip service is still paid to this approach, the string of scandals that has accompanied it seems to have given the Government and the regulator cause to think that going forward it might be better to stamp firmly on products or services before they can give rise to problems.

This is more than just product intervention for which the FCA is to be given new powers. It is also the warnings that the regulator is increasingly prepared to give about how IFAs advise.

But even as the UK regulatory regime undergoes another change the next development is already on the horizon.

The influence that European Union directives have had on UK regulation has been growing over the years and they are now probably the dominant factor underpinning UK rules. Now Europe is moving further in setting up regulatory institutions; in particular we have the European Securities and Markets Authority (ESMA) and there are similar bodies covering the insurance and banking sectors.

Money Management may not have to wait another 50 years to report the abolition of the FCA and its replacement by a branch of the ESMA.

IFAs are dead, long live the IFA

A paradox of the past 50 years is that IFAs owe their existence to the regulators. The SIB introduced polarisation, so IFAs, as we know them today, have been around only since the late 80s.

At various stages ever since, the demise of the IFA has been predicted. FIMBRA weeded out quite a number of firms but they were ones unlikely to enhance the reputation of the IFA sector - remember Roger Levitt? To its credit he was found out by FIMBRA, which was then let down by a botched SFO prosecution.