The Financial Services Authority’s (FSA) proposals are intended to to simplify the rules which govern retail investment business.
Fay Goddard, AIFA’s deputy director-general, commented: “We support the concept of a principles based regime as it should provide firms with greater flexibility in the way in which they carry out their business and it could enable them to respond more quickly to changes in the market. But if the new regime is to work effectively, the FSA will also need to change its approach to monitoring and supervision. There will be different ways in which firms operate but providing the outcome is satisfactory, the FSA will have to accept these different processes. The regulator needs to demonstrate to the industry that it will be able to do this otherwise firms will lack confidence in determining how they will apply the principles to their individual businesses.”
Goddard continued: “We are also concerned that where the reduction in rules and guidance leaves a vacuum, others will seek to fill it. This could be trade bodies, professional institutes, compliance or legal consultants. How do firms react if there is conflicting or inconsistent ‘guidance’ from numerous sources? Also, AIFA has no desire to act as a second tier regulator and, in any case, we have no powers of enforcement.
“Some of the proposed changes to the conduct of business rules are driven by the Markets in Financial Instruments Directive (MiFID). We will need to look closely at how the MiFID related requirements will be applied to non-MiFID firms i.e. the majority of Indpendent Financial Advisers (IFAs). We do not want to see changes which will incur costs for firms whilst failing to provide extra benefits for consumers.”
Goddard concluded: “We will examine the FSA’s consultation paper in detail and submit a full response.”
