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Financial advice review shows FCA is not independent

Last year when I was a Money Marketing reporter I heard a few rumours that former Treasury financial secretary Mark Hoban regretted the impact of the RDR.

Tory MP Hoban had been critical of over-regulation of advisers in opposition but by the time he came to office in May 2010 the RDR was well under way.

Nevertheless, IFAs launched a lobbying campaign and a parliamentary debate on the RDR took place in October 2010 where Hoban robustly defended the rules. He compared unqualified advisers to McDonalds’ staff and said much of it was necessary professionalization.

So in early 2014 it was interesting to hear he had apparently changed his mind. But he wouldn’t answer my calls or emails. His office told me he was too busy to talk.

In the end, he was speaking on a Policy Exchange panel on pensions in London so I tracked him down and asked him whether he regretted the RDR from the audience.

“Let me just correct you; the RDR is nothing to do with me, it was the decision of the independent regulator,” he said. “I know lots of IFAs hoped I would interfere with the regulator but that is not something I would make a practice of.”

So he wasn’t going to admit any reservations to me anyway. This came back to me last month when the Treasury announced a joint review of financial advice with the FCA.

It has three aims. First, to solve the advice gap; second, to create regulatory environment to encourage innovation; and third, to encourage people to seek advice.

All worthy and perfectly reasonable for the Treasury to pursue. Indeed it is not a surprise to see Harriett Baldwin fronting the project as she has long been a champion of the advice sector.

Advisers have been crying out a review like this for years and it turns out all that was required was the political will in the Treasury. It also helps having another champion of financial advice in Ros Altmann as pensions minster. All of a sudden financial advice is a “priority” for the FCA but there is no chance this would have happened without them being pushed.

The regulator can be pushed both formally and informally into enacting ministers will. It makes Hoban’s excuses about the “independent” regulator look rather hollow.

This is the Government ordering a regulator review to alter the shape of adviser regulation. It is clear that Hoban could have done something similar in 2010 about the RDR if he had the will.

There is, in fact, a clear parallel as former housing minister Grant Shapps intervened directly in the FCA’s mortgage market review consultation in December 2010.

He said the MMR was “step too far” and said there should be more prudential regulation rather than “pernickity down in the dirt regulation”.

This withdrew political support and – alongside heavy lobbying from the Council of Mortgage Lenders – the MMR was significantly watered down. No qualms about FCA independence for Shapps and he wasn’t even in the Treasury.

There were also no qualms about independence for George Osborne last month when he effectively sacked FCA chief executive Martin Wheatley. Osborne reflected concerns among senior politicians about Wheatley’s performance, as first revealed on this blog.

So we have the Government ministers interfering with advice regulation, mortgage rules and who runs the entire organisation. And yet politicians still have the temerity to claim the FCA remains totally independent.

It is not just Hoban, it is convenient for ministers to intervene when they choose and then stay clear when there are problems. It reduces their accountability.

A former senior civil servant at the Treasury recently told me the Government can and does overrule the FCA on aspects of regulation it does not like. It happens behind closed doors but the Treasury does not simply let the regulator do as it pleases.

Why else would banks spend millions on lobbying ministers? It’s not just for the big macro issues but to highlight smaller regulatory issues that can cost them fortunes too.

As the Government intervenes once again this summer with a welcome review into financial advice, there is a wider message.

Don’t let ministers ever again claim the FCA is independent. The buck stops with the Treasury.

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