Industry blog
July 2007
A prudent way forward?
24 July 2007
When the FSA launched the initial discussion paper on the Review of Retail Distribution (DP 07/1), it said that it would cover a wide range of issues including prudential rules. One week later, it released a further discussion paper (DP 07/4).
Whilst the main Review document and the accompanying platform paper have attracted some positive comments amongst a mixed bag of responses, the paper on prudential rules (or capital adequacy as it is often referred to) has generally received a poor reaction. Differences of view are to be expected – encouraged, even – at this stage of the process. This is a discussion document and not a consultative paper, and it attempts to open up a number of important questions.
Much of the thinking is very ‘green’ - some of the hypotheses are self-evidently open to challenge. And, as is often the way in life, the statistical evidence is on the thin side, and where it is provided it is often contradictory.
Beneath the provocative emphasis on capital as a way of paying compensation for mis-selling, the main point is the FSA wants to use the prudential rules to help foster appropriate action amongst firms and their management. This means capital requirements may well rise for firms that look weakly resourced today. But firms that exhibit the right attributes (for example high professional standards, customer agreed remuneration, and good treating customers fairly processes) can expect to receive a regulatory dividend.
Overall, this is a thought provoking paper with some interesting ideas. I think we would be foolish to totally dismiss this paper. It also poses some good points, which we need to debate.
Peter Williams
Head of Industry Development
'Wrapping it up'
17 July 2007
On the same day that the FSA issued its Discussion Paper (DP) on the Retail Distribution Review, it presented us with a second DP entitled ‘Platforms: the role of wraps and fund supermarkets’.
Not surprisingly, the noise surrounding the main Review swamped the second DP, which is a shame. Not only are the two papers inter-related on the long-term policy issues, the platforms paper carries some important regulatory messages for the current market.
The FSA takes the opportunity to remind the market that while the FSA handbook doesn’t contain any direct reference to platforms, all platform providers and advisers are covered by the FSA’s 11 principles of business, the five most relevant being management and control, customers’ interests, communications with clients, conflict of interest and customers: relationship of trust.
On the longer-term policy issues, the DP is a refreshing shade of ‘green’. The FSA does not claim to know all the answers but instead concentrates on exploring how platforms can be made to work for the benefit of the wrap provider, the advisers and – importantly - the consumer.
The future definition of ‘independence’ is perhaps the most controversial in both this DP and its bigger sister. The Retail Distribution Review is considering a new definition of ‘independent’, yet the platform DP examines the market based on the current definition. There are good pointers explaining how a firm may be able to use a single platform while still maintaining whole-of-market credentials.
Overall, I like this paper. It provokes thought and should stimulate debate. It also neatly reminds everyone that this is a principle-based regulator and the best way to survive and flourish in this new world is to be principled yourself.
Peter Williams
Head of Industry Development
Important note
This blog provides the views of our industry lobbying team. The views are the opinion of the person writing the entry of the blog and don't necessarily represent the views of AEGON in the UK. They are based on their interpretation of industry developments and their current understanding of UK proposed and actual legislation, and should not be interpreted as recommendations or advice.
