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’s 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’s 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 – funds and structured products, for example.
There has been a lot of huffing and puffing about the Treasury’s rather odd characterisation of the CPMA as a “consumer champion”. It’s 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:
“…a primary objective of ensuring confidence in financial services and markets, with particular focus on protecting consumers and ensuring market integrity.”
I think the argument about it being a “consumer champion” 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.