30th September 2011

Stupid is as stupid does?

We hear, with a mixture of sadness and Schadenfreude that the EU, in its Mifid 2 reforms proposals, could be about to overturn the RDR ban on the payment of commissions. The European Commission’s Mifid II draft revision, due for release in October, will, it is understood, propose that a ban on commission should only apply to independent advisers

The draft directive says: ‘When the investment firm informs the client that investment advice is provided on an independent basis the firm….shall not accept or receive fees, commissions or any monetary benefits paid or provided by any third party or a person acting on behalf of a third party in relation to the provision of the service to clients.’

In effect this means that those offering restricted advice could still receive commissions along with commissions being paid for execution only business. This has the potential of scuppering the plans for an outright ban in 2015, at the same time creating an unlevel playing field or perhaps another playing field with different markings and a different size ball with different sized teams.

So I think this is a good time to rewind to earlier this year, you may wish to look at this TSC session video. Or indeed read the transcript

In March the TSC had Messrs Sants and Nicolls in for a chat. 

A number of interesting questions were asked such as “why is it that the FSA is spending £1.7billion on RDR when at the same time the EU is reviewing the same areas and may well override elements of RDR. Sants & Nichols say it is because the FSA can’t wait for the EU!!! 

Remember, Sheila Nicholl’s seemed to find this whole process amusing, so much so that George Mudie MP said: “Do you find that amusing, Mrs Nicoll? The industry doesn't. ”!

During the process Andrew Tyrie raised the issue of FSA accountability and this led to an interesting exchange that I am sure many remember, it went as follows:

Q41 Chair: Reckless behavior was defined for me when I asked exactly this question when FSMA was going through Parliament. Recklessness was described as doing something really stupid knowing it’s really stupid. Do you think that you should retain immunity from redress in the courts for doing something really stupid knowing it’s really stupid?

Hector Sants: Of course, presumably the question is: who would pay? Would you then be suggesting, given our only revenue raising capacity is the firms, that in the event that you judge that the officials had breached the requirements you outline, we would then retrieve the money from the firms, or if you felt we should be paying, you probably would find you would have an issue as to who would want to work in the business?

Sants told the TSC that:

I am saying that we are, as you would expect, in dialogue with the Commission, which I believe is our role to try to influence the European agenda, and I know it is very important to you that we do seek to influence the European agenda. We are comfortable with the model we are introducing here in the UK and we are proposing that as a way forward in Europe, and that is what you would expect us to do. I am certainly not saying that I know what the Commission is going to do.

Ms Nicoll also felt that the European legislation would not take effect until some time after the RDR implementation date in January 2013. She told us that "We don't yet have legislation in the context of PRIPS and we are not expecting that until the end of this year. [...] most European legislation then has a lead-in period and a transitional period. We think that would take us well beyond the RDR deadline date".

In written evidence to the TSC, the FSA provided further assurances on how forthcoming EU legislation would dovetail with the FSA's proposals under the RDR. It stated that:

We believe our rules will be compatible with the outcome of the Commission's recent consultation, and we keep closely in touch with the Commission on both our developments and theirs.

We are confident that, rather than waiting for any new EU rules to come into force, we should move to strengthen protection for UK consumers now

Sants knew that the European regime might have an outcome that was somewhat different to their proposal and has carried on regardless.

I think that despite what your stance may be on the RDR many will be asking if the job losses and millions spent on this process to date have been a result of good judgment or the actions of someone being really stupid.

The TSC recommended a delay, that has so far been ignored making some quite cross.

Indeed some may consider the actions of Sants and Co, if the leaked proposals turn out to be as reported, as reckless behavior…… doing something really stupid knowing it’s really stupid. And as we all know, they are immune, as an organisation, from redress for action of that type.

Once again the famous Bob Monkhouse quote springs to mind ““People used to laugh at me when I said I wanted to be a comedian. Well they're not laughing now.”

What a mess!!

Regulation, Panacea Comment