The FCA will bring to an end light touch regulation, while reducing the number of consultation papers - if you believe those in the know. Is it possible to do both?
The journey to the Financial Conduct Authority (FCA) has begun. In a series of set-piece speeches, beginning at the FSA’s Asset Management Conference in September, CEO designate Martin Wheatley outlined his vision for the new regulator that takes over from the Financial Services Authority (FSA) next year.
He told asset managers and advisers: “We want you to be profitable, but what the FCA will be about is ensuring that the profits you make are based upon the fair treatment of your customers, rather than at their expense.”
The era of light touch regulation, it appears, is over.
The rise and (promised) fall of consultation papers
Rightly or wrongly, the regulator has taken a hammering from the public over the financial crisis. Wheatley will be seeking to avoid the same again, according to Simon Morris, a regulatory lawyer at CMS Cameron McKenna – for his own sake as much as the FCA’s.
“The FSA was kicked and kicked and kicked again by the Treasury Select Committee over its regulation of RBS, HBOS and Northern Rock,” he said. “On his visits to the TSC, [Wheatley] does not want to look like a naughty schoolboy, and the way he will do that is by being a very firm and adversarial regulator.”
So banks will be affected – but so will IFAs. “[Advisers] might have noticed [the FSA] have become more demanding and challenging, and less willing to accept assurances,” Morris said. “That is what you will get in the future.”
At the same time however, the FCA is understood to want shorter and fewer consultation papers.
The amount of regulation advisers have to deal with has been rising year-by-year (see box below), a trend the FCA is keen to avoid. It also wants to show a clear link between the fees advisers paid and services they received in return.
Speaking at the Tax Incentivised Savings Association conference, head of asset management Ed Harley, who will also hold a similar position at the FCA, admitted the FSA had been “not been as good as getting [that] message across as we would have liked”.
“One of the really important points about how regulation is going to change is that we want to be more open and accountable,” he said. “We want to get out there to talk to firms: we’d like to have fewer [consultation papers] and for them to be more concise.”
Harley omits an important fact: that European regulation will play an enormous role in what the FCA can and cannot do.
In the handbook on the transition from the FSA to the FCA, published at the beginning of the month, Wheatley admits as much.
“Rules and standards affecting the UK’s financial system are increasingly being made by the European Union,” he said.
Morris goes further: “UK regulation is made in Brussels. You have got a new milkman [Wheatley] but the milk is the same. That milk comes from Brussels.”
Being a “consumer champion”, as Wheatley put it, is a noble aim. So is reducing the regulatory burden for advisers. Whether he and the FCA can achieve both, however, depends on the EU.
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