The trade association has published its response to the FCA’s call for evidence which closed today (March 3). In it, Pimfa urged the FCA to “rethink” its proposals to improve the AR regime, which would require networks to self-assess each member firm on an annual basis.
"All the network boards will be doing all day everyday all year round is performance appraisals. They won’t have time to do anything else," said Simon Harrington, Pimfa’s public affairs head.
“The net effect of these proposals will, we fear, turn the governing bodies of network firms into nothing more than extremely well-paid human resources consultants…[Networks] are genuinely quite worried about the impact of this and they should be.”
Harrington said the proposals as written would have “significant and detrimental impacts” on network firms.
According to the FCA, networks generate between 50 and 400 per cent more complaints and supervisory cases on behalf of themselves and their members than firms which are not networks.
The FCA has therefore concluded more issues arise from principals and ARs than from directly authorised firms.
The AR regime, introduced in 1986, is now being looked at by the FCA and HM Treasury to limit its scope and reduce opportunities for abuse of the system.
While Pimfa accepted there was “significant scope” for improvement across the AR regime, the trade association said the FCA had “underestimated” the extent of the recalibration needed for larger networks to meet its proposed administrative requirements.
“This feeds into a broader anxiety that we have that you [the FCA] do not sufficiently understand the network model and how your proposals will impact them in particular,” it said.
In its initial proposals, the FCA said the ongoing annual cost of this regulation for the average-size network equated to one working day of three senior managers, and six working days of two compliance staff.
Pimfa has since challenged this, arguing that based on member feedback a network firm which has between 200-250 ARs would require the addition of “at least two full time staff” to gather relevant information, complete the annual reviews and report them correctly.
While some large networks may be able to swallow this cost, Harrington said the true cost of this regulation should be acknowledged by the regulator.
“We have significant misgivings about the ability of network firms, who in many cases look after hundreds, and at times, thousands of AR firms, to be able to report on data within the required timeframe, much less their ability to provide individual self-assessments of each AR firm on an ongoing basis,” said Harrington.
Pimfa said it is “sceptical” as to whether the FCA “will be able to extrapolate any meaningful conclusions from the sheer volume of data you will be receiving from firms as a result of these proposals”.
It also said the FCA was placing “significant burdens” on the retail market to “atone for the sins” of what has happened within the wholesale market.
Pimfa concluded by urging the FCA to meet with retail firms who operate developed AR networks in order to properly understand the practical implications of the proposals set out in its paper.
FTAdviser approached the FCA for comment.
ruby.hinchliffe@ft.com
