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FSA plans overhaul of adviser supervision

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FSA plans overhaul of adviser supervision

The Financial Services Authority (FSA) is planning a radical overhaul of the way it regulates financial advice firms, cutting the number of financial services firms that have a relationship manager from 2,000 to less than 100.

Currently 2,000 firms including national IFAs, networks, asset managers, and banks, have a FSA relationship manager responsible for their supervision.

New Model Adviser® understands this number will reduce to less than 100 when the FSA transforms into the Financial Conduct Authority (FCA) in 2013.

The FCA will instead use increased powers to issue a greater number of skilled persons reports, also called section 166s, with the bill footed by the firm being reported on.

The regulator is asking compliance consultants, qualified to carry out section 166s, to apply to be on its panel.

If an IFA business is instructed to commission a section 166, it must use one of the consultants on the panel.

A source familiar with the situation said: ‘When [the FSA] moves into the FCA, there will be a substantial reduction in the number of relationship-managed firms.’

In a recent speech to asset managers, incoming FCA chief executive Martin Wheatley said the new regulator would ‘have fewer supervisors attached to particular firms’.

Bovill compliance consultant Russell Weekes, who worked at the FSA for 11 years, said: ‘I’ve certainly got the impression that skilled person’s reports are now the mainstream supervision tool. This is interesting and it’s not great, because they’re not cheap and the firm pays the cost.’

Tim Sutcliffe, managing director of network Pi Financial, which was recently fined £58,000 by the FSA following the findings of a section 166, said the cost of reports could be problematic for advisers as consultants’ fees ran into six figures.

‘These firms are expensive and that will I’m sure cause problems for a number of firms,’ he said.

Sutcliffe said reports often took years to complete: Pi’s had been commissioned in 2009.

Jacksons Wealth Management managing director Pete Matthew said the change in approach could help the regulator understand things in more depth.

‘[This is] a realistic and welcome way forward. It’s just such a massive job, I don’t think there’s another way to do it,’ he said.

‘The thematic reviews have been done really well. It’s a good approach to look in depth at something and to pick out what needs to happen from there.’

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