It has been quite a week for regulatory activity. While Bank of England governor Mervyn King has been discussing the future of banking supervision and the role played by the new Prudential Regulation Authority in his annual Mansion House speech, the PRA’s predecessor has been busying itself with a variety of investment issues.
Since Monday, the FSA has, among other actions, secured its first criminal conviction for boiler room fraud, fined a trader £700,000 for market abuse, stripped an IFA of his permissions, published a feedback statement on its product intervention paper and, perhaps most significantly, sent a “Dear CEO” letter to wealth management firms in an attempt to address failings identified in a sample review.
While there is inevitably a sense of shutting the stable door to be found in this new atmosphere of more intense regulatory activity, there seems no doubt that the regulator is sticking to its promise of being more hands-on in its approach – and not just with the banks.
It is easy to sit here and suggest that the FSA and its successors will once again prove more of a hindrance than a help to the investment industry. Regulation is a thankless task at the best of times, and these are hardly the best of times.
Flaws
That is not to say there are not obvious flaws: the structure of the Financial Services Compensation Scheme, for example; and increasing costs on a variety of issues could not be coming at a worse time for many firms.
Moreover, the sheer depth and breadth of issues which the FSA is now looking to address could lead to accusations is overreaching. Notably, according to an annual report which the FSA also found time to publish its annual report this week, it is doing this against a backdrop of a sharp spike in staff turnover.
That may be due to the uncertainty surrounding the regulator’s forthcoming break-up and transformation into the PRA and the Financial Conduct Authority. It may even be exhaustion, such is the number of fires, real or otherwise, that the FSA is now attempting to fight.
None of this means that this week’s actions should be dismissed out of hand. In the case of the ‘dear CEO’ letter, it is hard to make an informed judgement without knowing the details of the review itself – exactly what constitutes a risky investment in current markets? With CPI at 4.5%, cash or even bonds are not exactly ‘safe’.
But the headline findings, which showed that 14 out of 16 wealth managers posed a high or “medium high” risk of detriment to their customers, are undoubtedly worrying, and wealth managers may do well to follow FSA conduct business unit director Margaret Cole’s advice and review their own business practices. It certainly looks as though they will be urged to do so on an increasingly regular basis for the foreseeable future – and all this without even considering the impact of the RDR.
