LevyOct 2 2020

Advisers mull FCA 'turning point' amid calls for FAMR II

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Advisers mull FCA 'turning point' amid calls for FAMR II

The City watchdog’s proposal to look again at how to limit Financial Services Compensation Scheme costs may indicate a pivotal moment for the regulation of advice, advisers have claimed.

Dominic James Murray, independent financial adviser at Cameron James, said the Financial Conduct Authority’s Call for Input paper signalled a critical moment for an industry hungry for change.

He said: “In theory, the proposals pave the way for a more efficient consumer investment market. The FCA [seems to be] effectively considering a ‘polluter pays’ stance, which would make the parties responsible for producing bad advice more responsible for paying the damages.

“This could go down as a turning point in the UK.”

Positive steps

Some advisers were less eager to brand the regulator’s Call for Input as a milestone, but still thought the proposals from the watchdog were notable.

David Penney, director at Penney, Ruddy and Winter, said: “The paper certainly seems like a step in the right direction, in terms of acknowledging the polluter pays model would be best, and setting out and acknowledging many of the issues advisers have been raising for years.”

Darren Cooke, chartered financial planner at Red Circle Financial Planning, said the FCA did not really tend to do “turning points” but that the paper signaled a “shift in focus” with a “new top man coming in”, referring to incoming chief executive Nikhil Rathi.

He added: “The musing on a polluter pays [system] is a big shift. The new man is seen as a Treasury man, so maybe the noise we are making through our MPs is being passed on.
“It would please an awful lot of people if this came in.”

The FSCS saga

In September, the City watchdog said it wanted to “consider” how it could have a system where “firms which cause harm end up paying more” of the FSCS’s costs.

The regulator reiterated it did not want to conduct a fundamental review of the lifeboat scheme’s funding structure, but said it was aiming for a “more preventative approach”, with options including a renewed attempt to pinpoint or penalise potential wrongdoers before claims arrived at the FSCS.

Advice companies have seen dramatic rises in their FSCS levy costs over the past few years as defined benefit transfer and complex self-invested personal pension claims have come back to haunt the industry.
In the summer, Financial Adviser learned of businesses receiving regulatory bills more than 100 per cent higher than last year’s invoice.

The increases led advisers to sound warnings that the much-discussed advice gap was likely to widen further, with consumers priced out of advice as companies increased their fees in order to balance the books.
In its latest paper, the

FCA’s proposals included higher professional indemnity or capital adequacy requirements for ‘riskier’ companies.
Others in the industry were less impressed by the FCA’s options, arguing a wider review of the industry is needed to enact real change.

Calls for review

Keith Richards, chief executive of the Personal Finance Society, said a second Financial Advice Market Review was “essential” to address wider access to advice challenges.

He said: “We know the FCA is aware there is a problem, but it is equally not in a position to change the primary legislation that has helped to create the problem over time.

“The only way to create a sustainable system of consumer protection through education and compensation is by changing primary legislation, which is not within the gift of the FCA.

“Sadly, the ship is still heading for the rocks unless the government steps in to change course.”

Simon Bussy, director of wealth at Altus, agreed, saying he applauded the recognition from the FCA that polluting companies should pay more, but described the paper as “a bit wishy-washy”.

He added: “I would love to see a FAMR part two, provided it actually delivered a consumer benefit.
“The first was a missed opportunity. This is an opportunity for the new FCA chief to put it right, and turn words into meaningful action.”

Meaningful change?

But not everyone was convinced further reviews of the advice market are key to its reform.

Tim Harries, head of risk, governance and compliance at WPS Advisory, said going down this route would simply further delay the likelihood of meaningful change.

He said: “There’s the old expression: you don’t fatten a pig by weighing it. The FCA seems unable to embed the policy intention of any change and see it work before it launches another review.

“We think we know what we want to achieve – an equitable market in which consumers have trust and advisers can earn a respectable crust. Launching FAMR II is simply a delay to making genuine progress.”

He added: “What benefits would it deliver above what we already know is needed?  Do we know whether the current developments are making a difference?”

Mr Harries said there was “plenty of data swishing around” and another review was “unlikely to illuminate” something the industry had not seen before.

Anthony Morrow, co-founder of OpenMoney, agreed. He said: “A lot can be done to improve the industry and deliver the positive outcomes the FCA is seeking, without wasting time and resources on further consultation.”

amy.austin@ft.com, imogen.tew@ft.com

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