The Financial Services Authority's product information disclosure rules are costing the industry an estimated £225m each year, according to a report by Real Assurance Risk Management.
The report reveals disclosure rules cost the mortgage industry an estimated £97.8m each year, the life and pensions sector £54.3m a year and the general insurance and pure protection sector £45.9m a year.
The costs arise from supplying product literature, preparing documents, complaints handling and the additional time needed for disclosures.
Real Assurance says when it started the work it was expected ongoing costs to the industry of the FSA’s disclosure requirements would be significantly higher than the £600m ‘business to regulator’ costs it identified in a previous report.
It suggests this is because firms believe while suitability letters, for example, are expensive to produce they carry a negligible incremental cost.
In addition, another respondent said this requirement is around 20 years old and has become embedded in business practice, while others suggested concern about complaints are driving firms to produce more rigorous documents quite apart from the requirements of the rules.
The report also says the cost of paper required to produce the necessary literature is not as large as expected at £72m a year for around 1.5 billion printed sides of paper.
The ongoing costs of preparing, reviewing and updating documents were also not assessed as high by respondents, but the original set up costs of the new regime including preparation of new key features documents were much higher.
The report states: “In terms of the overall policy objective of finding third party administrative burdens that may easily be cut, we doubt whether there are many ‘quick wins’ to be had which could result in significant cost savings to the industry. Moreover, it is quite possible that any such changes would require further major process re-engineering in which any savings might well be lost.”
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 Emily Perryman on 020 7968 4554 or email [email protected].IFAonline
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