A good Egg

Ashurst Morris Crisp, the City law firm, recently hosted an instructive briefing seminar on understanding the new regime. Unusually and imaginatively the panel of knowledgeable and fluent speakers included a non-lawyer, though he did admit to possessing a law degree. Richard Warrington, head of risk and compliance for Egg Plc, the online bank, offered a personal view of the new regulatory environment and its antecedents from the standpoint of a compliance officer in the retail, PIA area. He started by noting that perceptions of the compliance officer’s (CO) role have changed markedly since the appearance of the Financial Services Act some 14 years ago. Originally the CO’s job was considered part-time and was tacked on to the duties of the internal auditor or company secretary, often for no better reason than that the hapless individual happened to be in the chief executive’s line of vision when he needed to fill the post. That was at a time when SIB (the Securities and Investments Board) was extending its reach and when managers were more likely to have heard of “Sid”, the fictional investor British Gas used to publicise its privatisation.The compliance officer soon became one of the most unpopular people in the company, especially in the eyes of the marketing and sales managers, because his or her answer to all questions seemed to be “No” regardless. However, this caution was not really surprising Mr Warrington pointed out, since in those early days the regulators themselves sometimes seemed at a loss about how to interpret the regulations. On occasions they would suggest asking a lawyer and in one memorable instance Mr Warrington said he was told that it would be for the courts to decide the correct view. Fortunately, he hastened to add, the regulators are now much more willing to help and the full-time CO can at least answer “No, but…” He was positive about the new regulatory approach, which displays “less rigidity over interpretation”, and the more rigorous approach to know your customer controls, fact-finding and record-keeping. He also said that disclosure statements were much clearer than previously although the problem of how to ensure that the customer reads them remains. However, he observed that the massive Conduct of Business Sourcebook (COBS), the tome designed to consolidate the existing SRO rule books, has to be handled with care. It cannot be assumed to mirror exactly all the regulations to be found in the earlier separate volumes, there are changes. Mr Warrington went on to say that the FSA was right to place a high importance on consumer education but that this would take considerable time. He also made a plea on behalf of the sales teams who have borne the brunt of criticism for the mis-selling scandals. The endowment policy problem could not, he believed, be laid at the door of commission-hungry salesmen alone. Investment managers who have not generated sufficient fund performance and actuaries who may not have taken adequate account of a decline in inflation and equity returns also have a case to answer. It was likely to be a firm-wide issue. There is the worry that if sales divisions are constantly pilloried the general public may lose all confidence and stop buying, which would not be in anyone’s interest least of all that of the retail investor. This concern is highly pertinent with the imminent introduction of stakeholder pensions which must take off if the lower-paid are not to suffer a straitened old age. Mr Warrington also expressed concern at the number of voluntary codes for mortgage selling, banking and insurance. He thought that there was a case for them to be brought together under one regime. At the same time, the development of the single FSA regime is presenting a major challenge to compliance officers not least in having to cope with the flood of consultation papers. This may be unavoidable if an N2 date some time next year is the goal but, Mr Warrington commented, it was difficult to see how the compliance officer could address both immediate business issues and give his attention to the consultation process. There was a risk, he thought, that the responses the FSA received could lack business input from people at the sharp end of regulation. He also worried that once people realised the demands inherent in the approved persons regime it might become harder for the financial services industry to attract suitably-qualified personnel. After all, who would be fool enough to accept the stress, even when able to prove his competence?