Twin peaks regulation may be facing its first crisis, but should investment advisers care?
There is, at the time of writing, pressure on Martin Wheatley as chief executive of the FCA with some voices suggesting he should step down. At the heart of the matter is the apparent briefing of a Telegraph journalist about the inquiry into closed funds a few weeks ago.
Pressure has come from the Treasury, which insisted on an independent legal inquiry, and the Prudential Regulatory Authority (PRA), whose boss Andrew Bailey was demanding a clarification from the FCA only an hour or two following the newspaper report.
In no way would I suggest that any sort of market disruption should be welcomed. But is it really worth a scalp?According to subsequent reports, Mr Bailey wanted action early in the morning, but it took the FCA until the afternoon to clarify the scope of the review. The PRA sits within the Bank of England and now has responsibility to ensure insurers and banks are run prudently and do not run out of money. Meanwhile, the FCA covers, as advisers know all too well, conduct.
The FCA stands accused in some quarters of creating a disorderly market, with some insurers wanting Mr Wheatley to pay the price with his job.
Clearly there was disorder. Clearly some players in this most complex investment universe made hay, especially with short-term investors.
It cannot have been fun by any stretch of the imagination to be on the board of a fully closed insurer or an operation with a substantial closed book.
In no way would I suggest that any sort of market disruption should be welcomed. But is it really worth a scalp?
I think not. First, both Martin Wheatley and FCA chairman John Griffith-Jones appear to have a better grasp of how to regulate a market for conduct than most of their predecessors.
Without getting into too much detail, its predecessor (the FSA), among other things, failed to understand the financial crisis, to heed warnings about an overheating mortgage market, was browbeaten into allowing a ‘light-touch regime’ by politicians, missed the dreadful state of bank advice and overplayed the benefits of the RDR without acknowledging its downside – i.e. the contraction in adviser numbers. Actually the list goes on.
While advisers may not agree on everything, I rather suspect it is better to have a conduct regulator that has a reasonable understanding of the market, than one that does not or has to learn on the job.
The challenges now are many and various, not least pension and drawdown liberalisation, the urgent need to come up with rules for guidance, the necessity to police the wild west of investment outside the regulated market, and indeed the task of stopping payday lenders from preying on people in the most vulnerable sections of society.
My view is that this team appears to have more of a grasp of the issues than many previous management teams.
It would be a shame if what may well prove to be a mistake – and a serious one at that – then leads to a ‘one strike and you’re out’ policy.
And would insurers’ share prices really be in much better shape if the review had been announced in the business plan? I’m not so sure.
John Lappin blogs on industry issues at www.themoneydebate.co.uk
