Up to now, I have been extremely skeptical about the prospects of delaying or substantially altering the Financial Services Authority's Retail Distribution Review. The whoops of delight from many independent financial advisers when the Conservatives announced their intention to abolish the FSA and split its responsibilities between the Bank of England and a new Consumer Protection Agency seemed to me to be naive. There has just been too much miss-selling of financial products over the last 20 years for an overhaul of sales processes, clarification of status and reform of remuneration not to be necessary.The RDR, however, is far from perfect and alot of those imperfections were aired at a packed meeting of the
All Party Parliamentary Group on Insurance & Financial Services yesterday afternoon. Committee Room 17 in the House of Commons was full. Over a dozen MPs and Peers from all three main parties were there (more than you get at many Select Committee hearings) and the public gallery was full of interested observers, including political researchers, trade associations, companies and the press. This is an issue that engages alot of people.
Firstly, the BBA put in its plea for a new term to replace the proposed category of "restricted advice" which describes those firms that offer only a limited product range, often just their own. It complained that this is a pejorative term that could put off consumers. This view found little favour among the MPs and Peers, summed up well by the Labour Peer Lord (David) Lipsey who said: "The superiority of the independent advice remit must be made clear to consumers ... you are lucky that you haven't been told to call it sales because that is what it really is".
Secondly, the prospects for a wider review of the details and timetable for the 2012 implementation of RDR drew a surprising cross-party consensus and this centres on Europe. There is already confusion surrounding the details of the Markets in Financial Instruments Directive
(MIFID) and the issues that are causing concern are likely to be further muddied as the promised review of the workings of the Insurance Mediation Directive (IMD) kicks in next year. As the group's chairman John Greenway pointed out, it is only the UK that has this sharp regulatory separation between life and general insurance and whatever Europe decides to do in reviewing the IMD will have an impact on the retail financial services sector. So, he argued, we should wait until that review takes place before firming up the RDR. This view was strongly endorsed by the leading Liberal Democrat Peer Lord Clement-Jones and the group's Labour deputy chair, Baroness Turner.
What was impressive was to hear from AIFA that it has sent a delegation to Brussels recently, showing that it understands how these complex multi-national political processes work. They came back with the view that the European Commission stills views MIFID as "embyonic" and is looking to the review of IMD to inform the MIFID debate. The dots are being joined up and, as they are, it looks as if the future of the RDR is rather more in the melting pot than some of us initially thought.
