The Association of IFAs has called for the Financial Ombudsman Service to follow the example of the Financial Services Authority and establish a small firms division.
In oral evidence to the House of Lords Committee on Regulators, Chris Cummings, director general of Aifa, also questioned the ‘regulatory dividend’ which the FSA says the industry will receive if it embraces the move to principles based regulation.
While speaking to the Committee, Cummings admitted the FSA’s interaction with small firms has “improved considerably since the introduction of the small firms division and Stephen Bland’s leadership of it”.
And although he says initiatives such as the tailored handbook have been “considerable steps in the right direction”, he points out there is still further work to do and adds “we believe the FOS could learn from the FSA’s experience and establish its own small firms division”.
In addition, Cummings highlighted the cost of the FSA’s planned move to a principles based regime, as he argues while the FSA has “widely publicised” the cost as £50m, there has been no commitment form the regulator to perform a cost-benefit analysis of its introduction.
He adds: “How will the FSA determine whether or not the benefits the new regime should bring will outweigh the costs of its introduction?”
According to Cummings an Oxera report on the benefits of financial regulation published by the FSA last year was “illuminating”, and he argues Aifa cannot see why this level of scrutiny should not be applied to the costs of moving away from detailed rules towards principles.
He adds: “The FSA has talked a lot about a ‘regulatory dividend’ for the industry if it embraces the new principles based regime. We are keen to see what shape this dividend will take and when – it has yet to materialise. The FSA must remember that regulatory change for the industry costs money.”
Aifa also highlighted some other key issues in its written submission to the Committee’s inquiry, including:
- The need for National Audit Office scrutiny of the FSA every two years with a wider scope for investigation;
- Increased focus of FSA resources on supervision of firms rather than policy;
- ‘Competition’ to become a fifth pillar of the FSA’s objectives;
- An end to regulation by speech
Cummings adds: “Regulation should not be a barrier to competition and the FSA’s objective should be to ensure that it creates the right regulatory environment to encourage it to flourish since it brings benefits for both the consumer and the industry.”
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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