Before the 9 March Treasury Select Committee (TSC) hearing on the RDR, Conservative MP Mark Garnier had promised to give FSA chief executive Hector Sants and chairman Adair Turner “hell“.
Although lacking in fire and brimstone, the main points to emerge were:
- Dilution of the RDR proposals is ruled out – Hector Sants confirmed the RDR rules are final, although the FSA will constantly monitor the impact of the new regulatory framework, especially in regard to any new information coming to light. The FSA explained that it believes any watering down of the proposals would result in “an increase in the cost to consumers through continued misselling.” This will not be welcomed in all circles but it seems clear that the RDR is coming and largely in its current form.
- No Level 6 hike post RDR – FSA bosses have assured MPs they have no current plans to raise qualification requirements above level 4 after the RDR deadline. Sants confirmed that the regulators do not plan to raise the qualification requirements which will no doubt come as a big relief to a number of IFAs who had been worried about the cost of compliance.
- Alternative assessment qualifications – The FSA acknowledges that there has been slow progress in the development of alternative assessment qualifications. Sants suggested the alternative assessment could help to reduce the proportion of IFAs set to leave the industry as a result of the RDR, which the FSA estimates at between 8-13%. It is hoped that the FSA will produce some proposals in the near future that will allow this to happen without relying purely on self assessment.
- A long-stop for advisers – the TSC announced they had collected 203 submissions on the RDR from IFAs, providers and trade bodies, and that the majority had expressed concern over the lack of long-stop time bar for complaints. Sants explained that the FSA might consider introducing the long-stop “if the committee recommends we take another look.” This would be a welcome addition to the RDR and one which will provide financial advisors with some more certainty. But as Robbie Constance cautioned in his recent blog, if Sants really wants a long-stop, the FSA could simply introduce one.
- The commission ban could be biased but will stay – The FSA defended its stance towards the commission ban despite conceding that the new charging structure could still be biased, and that under the RDR different products could have different payment rates.
- The FSA will take action against those firms churning out trail commission ahead of RDR – Garnier asked the FSA director of conduct policy, Sheila Nicoll, what the regulator is doing with regard to policing the churning of trail commission and the possibility that firms could find alternative ways of receiving commission – such as fees paid on behalf of product providers. The FSA acknowledged that this was one of the risks of the RDR and that the FSA is looking at it in its supervisory activity. Nicoll confirmed “If we find firms flouting these rules by taking trail commission inappropriately we will take action.” She added smaller firms will be monitored through the examination of “trends“.
- FSA is “completely accountable” – The TSC grilled the FSA over the thorny issue of democratic accountability and redress (the regulator currently benefits from statutory immunity buried in paragraph 19 of Schedule 1 of FSMA). When quizzed on whether it is fair that the regulator has immunity from negligence claims, Sants said he is “happy” to consider the FSA’s accountability in light of changed public perceptions. He added the FSA will consider suggestions from the TSC on improving its accountability.
This last point will become all the more significant if the FSA goes ahead with plans to publish Warning Notices during enforcement action. As Steven Francis recently noted, the reputational damage of such publicity, if inaccurate, could be catastrophic and firms should not have to establish bad faith in order to recover damages from their regulator.