That is the worry of Richard Fox, chief executive of the Society of Mortgage Professionals, who fears some firms may use the ambiguity of principles to achieve an outcome which may not be in the best interests of the client but complies with the spirit of the regulatory regime.
Download our news ticker
Fox believed: “Principles-based regulation is much more reliant on outcomes but if you say, for example, you measure the ability to manage complaints, how do you interpret what a complaint is? If you have a target to meet, as long as you achieve that outcome, you could have a scenario where you are finding lots of ways not to log the complaint, to the detriment of the customer.”
Fox’s comments were backed up by Dev Malle, sales director at Personal Touch Financial Services, who believed there could be situations where firms have differing interpretations of the rules for different cases.
“If you are looking at ‘Treating Customers Fairly’ (TCF), you have to ask what the interpretation is and how you measure it. You may get knee-jerk reactions as to what to do or you will get inconsistent decisions. You have to have a measure to show what you are doing but how do you compare it, especially between all the different small firms?”
Get the daily news delivered to your inbox
Vernon Everitt, director of retail themes at the Financial Services Authority (FSA), admitted in a speech to the British and Irish Ombudsman Association Conference that: “Some firms are concerned that the move towards principles-based regulation will create greater uncertainty about what their obligations are to consumers.”
Robin Gordon-Walker, spokesperson for the FSA, insisted standards would not be sacrificed in the move.
“The key thing about principles-based regulation is the increasing flexibility on how to deliver the outcomes. It must be emphasised we are not relaxing standards. Principles are still rules which must be followed.”
