Countdown to RDR: Is self-regulation on the cards?

As professional bodies gain a greater role, some advisers, such as Chris Gilchrist (pictured), regard it as a move towards self-regulation, but they remain divided over its potential problems and benefits.

In the two years since the Financial Services Authority (FSA) dropped its controversial plans for an independent professional standards board (PSB), following concerns about costs and dual regulation, the existing professional bodies have taken a more central role in regulating individuals. They do this by issuing statements of professional standing (SPS) and work closely with the FSA in areas such as the policing of conduct and data sharing.

Some see this as a swing towards self-regulation, which could be set to continue after the implementation of the retail distribution review (RDR). But it is a controversial area and there is still confusion over the exact role of the professional bodies in this new environment.

The case for self-regulation

Chris Gilchrist, director of FiveWays Financial Planning, says: ‘The original proposal for an independent PSB tells us that, in principle, regulators are in favour of professional regulation being separated from the rest of the regulatory apparatus.

‘When the Financial Conduct Authority (FCA) takes over, you could see its role in relation to the adviser community moving towards macro-regulation: governing products, capital adequacy, corporate structures, mergers and acquisitions and the kinds of permissions companies have, for example. Everything to do with qualifications and ethics could be downloaded to professional bodies.’

Gilchrist is also in favour of self-regulation for best practice. ‘The FCA-type regulation is a poor way of dealing with evolving concepts such as best practice in the RDR world,’ he says.

‘It would take a couple of years before the FCA could codify that and, by the time it has, the world will have changed again. It seems sensible to delegate defining best practice to professional bodies. That will result in better, more responsive regulation. The accountancy bodies, for example, have managed this over many years.’

Issuing statements of professional standing

David Thomson, director of policy and public affairs at the Chartered Insurance Institute (CII), argues that issuing SPSs is not a major change for the professional body.

‘A lot of it was already in place: qualifications, continuing professional development, ethics and, in our case, having an independent disciplinary process. If an individual breaches our code, they can be subjected to procedures and have their membership and professional qualifications removed,’ he says.

A difference from other professions is that professional bodies like the CII cannot stop advisers from practising, he says. ‘We can inform the regulator if we have withdrawn an individual’s SPS, and it is up to the FSA to take the ultimate action. Nothing has really changed, other than we report our data to the FSA and have some requirements as an accredited body that our systems are fit for purpose.’