The Financial Services Authority has moved to reassure the industry it will not bring enforcement action on the back of ‘good practice' industry guides once it moves to a principles based regime.
Speaking at the Association of British Insurers (ABI) conference ‘Thinking for Tomorrow’, Nick Prettejohn, chief executive of Prudential, warned moving to a principles based regime, may mean trade associations and companies themselves start producing their own handbooks and ‘good practice guidance’ to fill the gaps.
He says: “We will have a hybrid regime because of Europe and the objectives of the FSA on retail markets and consumer protection mean it will be hard to let go of the comfort blanket of rules.”
He points out in some cases rules are the right regulatory tool and it will be for the FSA to be discriminatory and know when and how to apply rules, with one example being the possible need to cater for generic financial advice and any intermediate solution between generic and full advice.
However, he says guidance and advice should be just that, he says case studies are not as helpful as some might think as they vary in applicability and he argues trade associations producing advice and good practice could “unwittingly create new rulebooks in their zeal”.
And he points out if these ‘good practice’ guides are recognised or ‘confirmed’ by the FSA, this could mean there is the possibility the regulator could act on these voluntary guides as if they are FSA rules.
In response, Clive Briault, managing director of retail markets at the FSA, says while the body sees scope for imaginative approaches to how high level principles can be interpreted, he accepts there is the possibility ‘good practice’ material could drown out and replace the rules which the FSA is deleting.
But he adds: “I think there is a demand from the FSA to illustrate points of the principles, and from the industry which finds these things useful. And we are developing a process for confirming guidance which meets our minimum requirements.”
However he stresses the principles of the new regimes are still rules – albeit high level ones – and confirms “we won’t bring enforcement action on the back of industry guidance, this will only occur when rules are breached”.
In addition, Briault says the FSA is intending to carry out fewer high level thematic works, and to communicate more with stakeholders on how it is delivering outcomes, such as the introduction of Treating Customers Fairly (TCF).
He says figures released last week on the progress of TCF reveals some firms failed to meet the recent deadline for implementation, and warns small firms should be able to make quite swift progress on the issue.
Briault adds: “We intend to increase the focus and intensity of supervision on those firms which missed the deadline, which will be targeted depending on the reasons for missing the deadline. And this will most likely have some cost impacts on these firms.”
In his speech Briault also confirmed the FSA has set a March deadline for companies to introduce measures to test TCF in their company and to be able to demonstrate to the FSA they are actually doing it.
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Nyree Stewart on 020 7034 2681 or email [email protected]IFAonline
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