The Financial Services Practitioner Panel has warned the FSA not to disrupt the current distribution system without proposing a "viable alternative".
Commenting on the current Retail Distribution Review in its annual report, the Panel says it “broadly agrees” with the FSA’s suggestion there might be certain flaws in the current distribution system for some retail financial services products.
However, Panel members have expressed concerns “over the momentum that appeared to be building behind this Review”. It warned the FSA “not to disrupt the current distribution system without first being able to propose a viable alternative”.
The Panel also questioned some of the initial comments made by the FSA on distribution which it says were not backed up by hard facts in every case. Its report points out “such comments could unnecessarily undermine market confidence and prejudge the outcome of the Review”.
In addition, the report warns the FSA to scale back the amount of thematic work it carries out, and highlights the potential problem of boosting the new regime of principles-based regulation with "rules by speeches, press releases and 'Dear chief executive letters".
The report also raises concerns over the lack of feedback to firms and industry representatives as well as the objectiveness of the methodology and the potential for enforcement action on the basis of such work.
It also suggests the FSA should raise the results of contentious exercises with the relevant trade association before publication in order to “fact-check the broad findings”.
Roy Leighton, chairman of the Panel, says 2007/08 will be “something of a watershed year” for regulated firms, their views of the regulator's performance and the UK's position internationally.
He says: “The Panel is supportive of the FSA’s move towards a more principles-based regime, which it believes is the appropriate approach towards a modern, proportionate and effective risk-based regulatory framework in the UK.”
“But, on a more cautionary note, the Panel has urged the FSA to carefully consider the impact on retail firms of its numerous reviews, projects and thematic initiatives, especially when firms are getting to grips with principles-based regulation and the implementation of some major pieces of EU legislation."
The FSA recently confirmed it will be holding a ‘Retail Distribution Conference’ on 27 June, where it will unveil the findings of the recent Review while hearing presentations from the FSA, trade associations and providers.
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