Intermediaries have been arguing for years something needs to be done about regulatory retrospection, as firms feel it has been impossible to really challenge changes or decisions made by the FSA and FOS.
But at last, someone has come up with a sensible solution to the problem in the Aifa’s plans to create a database of accepted practice revealing what was influencing an intermediary’s decision-making at the time a recommendation is made, along with those aspects which might also influence the consumer.
As the Aifa points out, there are still many subjective factors which influence any investment decision but could later be challenged unless they are somehow documented beyond official regulatory requirements.
FSA rules stipulate advisers should show how they came up with a decision, but nowhere within this lengthy process do advisers have the time and space to put on paper exactly what the economic conditions and sentiments of the day are.
Recent mis-selling scandals have shown one investment type can be seen as a positive investment by the industry, regulators as well as the media but this can quickly change once markets turn and problems start to creep out. And this problem has to be tackled as far as possible, so it possible to say consumers must take some responsibility for the investment decisions they make.
One such example where the database might have been useful is the zeros situation, which until the beginning of 2001 were still seen as a low-risk product. Any analysis of the consumer finance magazines and newspapers at that time would have revealed they were considered low-risk - a perspective which was thought to be held by the FSA too at that time. Once markets fell and split-caps debacle began to unravel, however, regulatory officials were viewed by the industry as changing their stance to match consumer sentiment, and the national media demonised zeros as an evil product in a manner which suggested they had played no role in their development and popularity.
If a database had documented at that time the overwhelming view of the industry, along with the FSA’s view and UK economic conditions during their growth, it might have been easier to show which cases were genuine mis-selling and which advisers were simply affected by a change in consumer and regulatory sentiment towards investment losses.
It is a mammoth task to develop this immense database and maintain it cost-effectively, and will require a huge level of support from the IFA sector to establish what is accepted practice. But if it gets off the ground, the Stakes in the Ground initiative will finally be able to challenge decisions being made by the City watchdog and question whether it is merely responding to consumer outcry against investment losses or genuine evidence of mis-selling.
It should give financial firms some sense of power against consumer unwillingness to take responsibility for their actions and force the FSA to adhere more to its legislated responsibilities: supporting both the consumer AND the financial services industry.
Under more balanced regulatory conditions, the IFA sector might then be a little kinder about the type of art the FSA commissions to reside within its building.
A statement issued yesterday by Arts and Business - a charity which provides grants to organisations interested in the development of art – says it has given the FSA and the Plan Art Consultants money to create two pieces which “will strongly relate with the spirit and aims of the organisation, while creating an interesting dialogue with the architecture of the space”.
The ‘polite’ perception of IFAs today is any art commissioned by the FSA ought to show Lilliputians cowering under a sledgehammer-wielding giant. But who knows, that could still change if all the evidence suggests the industry and the FSA do share a common view of the market.IFAonline
Putting the tech into protection
Square Mile’s series of informal interviews
Fallout from Haywood suspension
Launching later in 2019
£80bn funds under calculation