-----Original Message----- From: fsarulesok [mailto:fsarulesokaol.com] Sent: 05 September 2005 11:33 To: IFA Defence Union Subject: [IFADU List] "Defect in Design" - are the FSA regulations just one example?

Evan

My name - Mike Fenwick

Background - You and I have been in discussion since the early part of this year.

Discussing - whether I could help you and your members, and if so how I could best help.

Current position - I personally have not yet decided on the answer to either of those questions, but it is now time to see what your members think.

To kick that off, I have copied in below the "opening paragraphs" to an article which appeared in Money Marketing in 1987 - yes 1987, nearly 20 years ago.

Might I ask that your members read my comments, and decide whether they feel that the analysis has proven correct?

You know that my interests run wider than just the effect that the regulatory process has had on intermediaries, and indeed runs wider than just the financial services industry into the effects of "regulation" across many other sectors - and that is one of my reasons for questioning whether and how I may be able to help.

Subject to that caveat, however, I think I can assist, as long as your members are aware that my interests are wider, and that lies behind the issue of this e-mail.

If there is a "defect in design" - and they are suffering from one manifestation of it under the FSA and FOS regulations - are they willing to participate in an effort that will address their concerns but also reaches beyond their sectoral interests?

I would be interested in hearing from your members.

Mike ...

Extract from Money Marketing - 1987

We all know that it will become a criminal offence for an intermediary to offer investment advice unless he obtains authorisation from either an SRO or from SIB direct. Failure to obtain and retain such authorisation leaves an intermediary in an untenable position. You cannot choose to continue as before as a “criminal”. Out of business is the only way you can go.

However, failure to obtain the necessary authorisation – simply to exist - is not solely based on an objective assessment of what is right or wrong, nor, indeed of what is deemed criminal. The criteria which may dictate whether you are guilty of a criminal offence may not be the commission of such an act. The over-riding criteria may be your ability to adhere to a set of subjectively assessed rules, and, even more significantly your ability to absorb the running costs involved in enforcing such rules. Ignore honesty! It may be the rules and costs which prove to be your prison.

We also know that the right to determine commission levels has been “awarded” to LAUTRO. Ignore for the present, the actual levels of commission set by LAUTRO. The significance of the “award” lies in the fact that the price which an intermediary will receive for his work is to be controlled by an entirely separate body from that which will determine the rules for his work and the costs which will support their enforcement. It is a double entry system with no eventual balance sheet.

It is also a recipe for disaster. Simple arithmetic is all that is required to produce “criminals out of the hat”.

Take any drop in the number of intermediaries to be regulated, add any increased regulation costs and multiply by a call on the compensation fund and they equal an immediate cost increase. Any such costs are uncontrollable and there is no compensating price increase. An inability on the part of an intermediary to absorb totally all such costs becomes a potential criminal offence. You do not actually have to commit an offence, it can just happen to you.