A changing of the guard in UK regulatory structure
– Richard Saunders is Chief Executive of the Investment Management Association. The opinions expressed are his own. –
Last week I was among a number of people asked to appear before the House of Commons Treasury Select Committee to talk about the Government‚Äôs plans for reorganising financial services regulation.¬† It was an opportunity both to see the new Committee in action and to set out how I see the plans affecting the investment management industry.
The new Chairman, Andrew Tyrie, is sharp and erudite.¬† I first got to know him when we worked together in the Treasury in the 1980s, and have always found him a clear and independent thinker. His style is very different from that of his predecessor, John McFall, but I expect him to be no less influential.¬† And the Committee has some good brains among its new members, including some with experience of the industry.¬† They will have clout in this Parliament.
So what did I tell the Committee?¬† In many ways this new structure could work well for the investment management industry.¬† One of our key challenges is to explain to a sceptical public, that however disenchanted they are with financial services, fund managers are fundamentally different from, and in no way implicated in the mess created by, the banks.¬† What better way to demonstrate that than to give them a completely different regulator to the banks?
Investment managers will be under the new CPMA (Consumer Protection and Markets Authority), while banks and insurers will be overseen by a new Prudential Regulation Authority.¬† The CPMA‚Äôs responsibilities for consumer protection and capital markets oversight look quite similar to the model of the Securities and Exchange Commission in the US.¬† I particularly like the fact that it has oversight of all conduct of business, including that of the banks and insurers who are prudentially regulated by the PRA.¬† That will improve the chances of consistent standards being applied to different but competing products ‚Äď funds and structured products, for example.
There has been a lot of huffing and puffing about the Treasury‚Äôs rather odd characterisation of the CPMA as a ‚Äúconsumer champion‚ÄĚ.¬† It‚Äôs the job of a regulator to regulate, not to go about championing things.¬† But always read the small print.¬† What matters here is the statutory objective, and what the Treasury proposes captures the role very well:
‚Äú‚Ä¶a primary objective of ensuring confidence in financial services and markets, with particular focus on protecting consumers and ensuring market integrity.‚ÄĚ
I think the argument about it being a ‚Äúconsumer champion‚ÄĚ is a red herring.
Last but by no means least, a strong markets division in the CPMA is good news.¬† Too much policy in this area has been driven in the past by investment bank lobbying.¬† Capital markets need to be run in the interests of investors and issuers, not to protect the amount of rent that intermediaries are able to extract for themselves.¬† Inside the CPMA and divorced from banking regulators, maybe the Markets Division will fully recognise this.
Incidentally, the need for a strong Markets Division is why we strongly oppose taking oversight of listing out of the CPMA and giving it to the Financial Reporting Council, an option canvassed by the Treasury.¬† Fortunately, nobody else seems to think it a good idea either, and I fully expect it to be dropped when we see the final proposals.
Overall then, this could be a good result for the investment management industry.¬† The continuing challenge will be to make sure that the buy side voice will be heard loud and clear in the councils of those overseeing financial stability.