A Tory administration would turn a critical spotlight on the Financial Services Authority and Brussels and introduce a lighter regulatory touch for insurance and financial services, Shadow Treasury Minister Richard Spring tells Ana Paula Nacif
With the General Election looming, the Conservative Party's efforts to win voters from the business fraternity are gathering pace. And, despite its campaign being bruised by the Howard Flight affair, the party marches on, challenging many of the issues that have been at the heart of the Labour government's economic outlook during the past eight years.
Among the Tories' sources of discontent is the existing financial services regulation. Should the party get back into power, the Financial Services Authority - which, Conservatives argue, is one of the main culprits of a system that is generally over-regulated and anti-competitive - can expect to find itself at the top of Tory leader Michael Howard's 'to do' list.
It was, therefore, no surprise last week when Shadow Chancellor Oliver Letwin launched a report - Reform of Regulation Covering the UK Financial Services Industry - Competition and Competitiveness; A New Agenda - that advocated a lighter-touch, principles-based regulatory regime and an immediate moratorium on European Union Directives (see box below).
According to the paper, the FSA handbook should undergo fundamental review to reduce "confusion and unnecessary gold-plating".
Richard Spring, Shadow Treasury Minister and author of the report, says the insurance industry would be a beneficiary of such changes. "Financial services are increasingly an important part of our national economic life.
"The insurance industry is hugely successful and sophisticated in the UK so it is, therefore, incumbent upon government to make sure the environment in which the industry operates is constantly growing and profitable," he explains.
Mr Spring believes FSA regulations are burdensome, creating an environment where competitiveness has been replaced by compliance at any cost. He adds that there is a "fear factor" in the financial services industry: the FSA overregulates because it is trying to protect itself from possible failure and complaints and, as a result, the industry, in turn, tries to protect itself against a regulator that operates through fining and publicly shaming institutions.
"We want principles-based regulation, whereby those who are selling the products set out principles and guidelines behind those principles.
"Current regulations are too burdensome. Part of the remit of the FSA has to be competition. Of course, investors and consumers need to be protected but at the heart of this we have to make sure we don't overregulate."
He argues that the FSA should be more efficient, employ fewer people and concentrate more on creating the right market for competition rather than on consultation papers and prescriptive regulations: "There have been more than 200 consultation papers and many other administrative forms completed.
"For example, a 1000-page document had to be filled out by all 66 Lloyd's syndicates. These are costly to management in term of the time spent reviewing and responding to each paper and of the diversion of their energy away from operating their business and serving their customer.
"The amount of paperwork now involved is counterproductive. No one would possibly read the information in the first place because it is too burdensome, so it is actually having the reverse effect of what was intended."
Another of the main issues tackled by the Tories' proposed reforms is European regulation; the reform paper calls for an immediate ban on new EU Directives. Mr Spring says there are more than 20 new measures that are expected to be imposed by 2006. "They should be blocked immediately, except where clearly requested by industry."
This, he explains, would reduce the amount of new regulations, allowing the FSA to regain control of regulation in the UK. "It would facilitate an analysis of the recent regulations, and allow industry to assimilate and act upon those changes. Insurers, for example, have had to deal with 99 separate EU legislative initiatives in the past 23 months."
Mr Spring gives the example of the Insurance Mediation Directive, emphasising: "A number of European countries will not implement this Directive in its entirety. The most important thing any government should do is to protect its financial services industry in the context of Europe.
"There is no point talking about level playing fields if we, indeed, are the only ones implementing and gold-plating. That takes me to my next point: why are we doing this gold-plating?"
Opposed to a single EU regulator because of the diversity of the legal systems in member states, Mr Spring states: "Financial regulators are closely involved with criminal prosecutions, which should remain under national control.
"A single EU regulator would be more distant from political accountability and from the operation of the market. The single regulator would lead to harmonisation and not to mutual recognition."
With its history of interventionism, the EU is not an example to be followed, he says. "The culture of the EU is still very interventionist and is not sympathetic to enterprise and competition. We have to stop that from happening."
A CONSERVATIVE GOVERNMENT WOULD:
- Give the Financial Services Authority a new remit, emphasising competition and competitiveness.
- Appoint independent directors for the FSA and the Financial Ombudsman Service.
- Review the FSA six months after the new remit is implemented to ensure that staff numbers are being reduced, a new culture is in place and the regulator is demonstrably invoking a lighter touch.
- Recommend to parliament that scrutiny of the FSA be transferred from the Treasury Select Committee to the Regulatory Reform Committee, with an expanded remit to include members of both Houses of Parliament.
- Replace prescriptive regulation with principles-based regulation.
- Require the FSA to publish a comprehensive cost-benefit analysis of each new regulation.
- Press for an immediate moratorium on new European Union regulations.
- Reject any proposal to introduce a single EU regulator and work for mutual recognition of regulatory systems of individual member states.
- Deregulate the venture capital industry.
- Home insurance insurtech Buzzvault launches
- Roundtable: Is a single customer view taking off in insurance?
- Ed unveils CEO Hearn’s replacement and plots Bermuda office
- Stackhouse Poland makes fourth acquisition of the year
- Hyperion hires CFO to replace Oliver Corbett
- CBL Corporation expected to be placed in liquidation, sees further delays to watershed meeting
- Aviva promises to 'reinvent' insurance and end dual pricing