From: S. Mansell [s.manselltemplebar.co.uk]
Sent: 16 June 2006 18:04
To: 'REDWOOD, John'
Subject: RE: Economic Competitiveness Policy Group reply & follow up

Importance: High
 
Mr Redwood
 
Thank you for your very prompt reply.
 
You say you are looking at how this body could be made “fit for purpose” at less cost than today. This is in fact a very easy task and you can do this in one move.
 
With regard to the FSMA the issue is that the government has vested in the "executive" powers that it (the government) does not hold accountable and especially accountable to the judiciary. So S228 (2) of the Financial Services and Markets Acts empowers the FOS to impose on firms: "such steps as the ombudsman considers just and appropriate (whether or not a court could order those steps to be taken" - S229 (2)(b).
 
To reform the FSA you need to bring both the FSA & FOS back under the rule of law.
 
You will recall Mrs Thatcher's and Sir Keith Joseph developed Conservative Party policy on trade unions by making the trade unions accountable to the courts and the rule of law and its was only after this measure that the government reclaimed the right to govern.  
 
Conservative thinking on trade union accountability should be duplicated in your approach to the FSA/FOS. You can't reform a cancer you must destroy it and rebuild what is left of your health afterwards. Leave one part over and it will return.  The UK insurance industry is the largest in Europe and the third largest in the world. The FSA & the FOS is unworthy of the task and powers vested in them and action must be taken.
 
Remember this: only 9.5 million of the 44 million electorate voted for Blair. There are 60,000 practitioners watching what you do on these important issues and for me and many many others what your are doing and saying is a breath of fresh air - please don't let the financial service down.  
 
*************************************************************************************************************************
IN PRAISE OF THE FINANCIAL SERVICES INDUSTRY
 
The UK insurance industry:
Is the largest in Europe;
Is the third largest in the world;
Pays out almost £156 million per day in pension and life insurance benefits and £54 million per day in general insurance claims.
Source: Sigma. Figures relate to 2003, the latest available.
Compared this to £135 million paid out by the UK government in state pension provision. Not a penny is asked in taxation from the public!
The insurance industry spends £2bn a year on healthcare - money that would otherwise have to come from the NHS.
One in five of all recently retired households now receive income from a personal pension.

AMOUNT INVESTED IN INSURANCE PRODUCTS
Almost £940 billion is invested in insurance products. This is 31% of UK personal sector wealth. £245 billion is invested in insurance administered occupational pensions, £365 billion in insurance administered personal pensions and £230 billion in life assurance.
Standard & Poor's Thesys. Figures relate to 2003, the latest available.
 
The popularity of insurance as a savings vehicle - as well as its valuable protection role - gives the UK a per capita long-term insurance expenditure of £1,800, second only to Switzerland. UK premium income is 13.8%, the highest of any G8 economy.
Source ABI

If you added ALL the funded Pension benefits in Europe together excluding the UK, the UK would exceed that figure by over 1 1/2 times! Since 1947 the Industry has put 1.5 times more in Company and Private Pensions  (without any compulsion) than the whole of Europe put together ...so if we have a problem God help the rest of Europe and God help the UK if we have monetary union with a Europeon pensions systerm that is already bankrupt.

SO WHAT ADDED VALUE DOES THE GOVERNMENT GIVE?
Contrary to the image portrayed by the regulators and the media the UK Financial Services Industry has achieved a position where it now pays out "more" pensions benefits than the UK Government. This is the first time in UK history and also the first time in the world, ever! 

HOWEVER THINGS MAY CHANGE:
Thanks to Gordon Brown, Advanced Corporation Tax takes more out of a pension in charges than does the commission and contract charges added together. Stakeholder robbed advisers of remuneration but there was not any rebate of ACT on the part of the government. It's a bit like fuel tax …easier to blame the Arabs!
 
The combined deficits on the FTSE 100 companies' pension funds, is estimated at £39 billion, almost exactly the sum that the Chancellor has raided from pension schemes since his dividend tax imposition in 1997. This makes Robert Maxwell look like a petty shoplifter and places Gordon's hand firmly in the pensions till.
What pension scheme exists with Government approval and has the highest front-end charge in the UK (of any scheme). If you fail to make 11 payments you get NOTHING. If you are not married and die, there is a 100% charge upon; you guessed it's the State pension.
 
**************************************************************************************************************************
 
Thank you for your thorough analysis of the costs of the FSA. We are looking at how this body could be made “fit for purpose” at less cost than today. We will be coming forward with proposals  in our Report.

Yours sincerely

 

John Redwood

 

From: S. Mansell [mailto:s.manselltemplebar.co.uk]
Sent: 16 June 2006 17:21
To: REDWOOD, John
Subject: Economic Competitiveness Policy Group
Importance: High

 

The Rt Hon John Redwood MP

 

redwoodjparliament.uk

 

Re: Economic Competitiveness Policy Group

 

I understand you will be scrutinising the role of the FSA over the next year to ensure that all costs on business can be justified and that you will be

looking at areas where the burden of regulation can be brought down sensibly.

 

You have said "For many small businesses, such as financial advisers, life is being made very difficult indeed and we will be looking at what can be done to address this problem." 

 

This is very welcome news and I would like to offer you this information and the full co-operation of myself and many many others who have long battled against the Leviathan at large - our industry which is being chocked to death by the regulators and I believe reform is a vote winner:-

 

THE TRUE COST OF ADVICE!

 

It is certainly true that every body and anybody wants to discuss IFA remuneration and value for money - so lets just extend commission disclosure to encompass regulatory disclosure.  The FSA believes in consumer rights without responsibilities and also the reversal of caveat emptor (buyer beware) and its replacement with caveat venditor (seller IFA beware).  The FSA has worked out that if you dissuade people from investing in anything linked to stock markets you surely avoid future problems or scandals. So they make advisers and the rest of the industry spend increasing amounts of time and money on compliance.

 

Change compliance requirements every five minutes. Overload the industry and the end user with documentation and warnings. It does seem to be working. Already there are reports of falling levels of new business for insurance companies and the sales of unit-linked maxi ISA plans are at an all-time low merely because advisers can't any longer afford to offer advice on such products. In some parts of the unit-linked industry, sales of units are exceeding new purchases, which is undoing a savings culture which has been the envy of the rest of the world. Another thing the FSA has worked out is if you have fewer financial services businesses to watch over, it should be easier to police the industry. So is this the end for independent financial advice? It does seem regulators and the present government believes investor protection is more easily achieved if they can push all financial advice through fewer and fewer big financial institutions - just like Equitable Life?

So lets just extend commission disclosure to encompass regulatory disclosure. 


THE FSA BUDGET

 

The FSA is one of the most powerful regulators in the world and had a budget of £210m last year. February 2006 The Financial Services Authority announced that it is planning to give its staff "above inflation" pay rises because of "pay pressures" in some of the sectors in which it needs to hire. According to its budget and key priorities statement for the year, the City regulator will give staff a 4.5% pay rise, which in turn will account for a rise in budget for 2006/7 to £276m.


HOW MANY STAFF DOES THE FSA & FOS HAVE?

 

In 2003/04 an average of 2,303 people were employed by, or contracted to work for, the FSA. In December 2004 the Financial Ombudsman Service reported a total employee complement of 950, compared with the 550 staff employed two years ago. This represents a 72.73% increase over just two years. Thus in we have total 3,253 staff and growing! At least this army will have a vested interest in maintaining an industry to regulate. Maybe the aim is a 1:1 regulator to regulated? 


WHAT IS THE CHIEF EXECUTIVES SALARY?

 

John Tiner, the chief executive, received £540,000, up 14 per cent, while his three lieutenants each received packages in the £340,000-£365,000 bracket.


WHAT IS THE CHAIRMANS SALARY?

 

Callum McCarthy 2003/04 £223,769 (Callum joined the FSA on 22 September 2003)

Previous chairman Howard Davies was paid £193,066 for the period from 1 April 2003  21 September 2003


WHAT IS THE DIRECTOR OF ENFORCEMENT SALARY?

 

Margaret Cole director of enforcement gets piad just over £300,000


WHAT IS THE FSA AVERAGE PAY?

 

30.06.05 THE Financial Services Authority (FSA) took the unusual step  of boasting that no fewer than 190 of its executives were on packages of at least £100,000. Average FSA pay in the year to March was £56,000 - more than double the country's average of about £24,000


FSA HAS FINED THE INDUSTRY £43,738,000

 

Where did this all end up?


ART WORK

 

Canary Wharf head office: Can only but speculate at the cost of this lovely building, not to mention the artwork. A Freedom of information requested 05/09/05 reveals the FSA has gone into the fine art business. Todate the FSA Fine Art Collection has cost the FSA or should I say the industry it regulates the grand total of £237,621.44.  - nice to know where my hard earned money is going.

 

TO WALK ON THE FLOOR OF CANARY WHARF?

 

You may think the FSA have the power to walk on water but how much does it cost to walk on the floor of Canary Wharf? £400,000 for design and installation of Banc Neuf limestone flooring, a feature staircase, installation of granite lift lobby cladding, security barriers and finishes.

 


HOW MUCH DOES THE FSA MONEY LAUNDERING RULES COST & SAVE?

 

Money Laundering Rules cost 400m to recover 46million! Yes that's right a cost of 400m to save 46m. Imagine if an IFA showed a set of accounts to the FSA with solvency margins like that! The industry is wasting millions of pounds to comply with the Financial Services Authority, but the reality is that this is little more than box ticking.  AN EXPERT in financial crime branded Britain’s attempts to combat money laundering as pathetic. In The Times 15.03.05 Mike Adlem, who trained with the fraud squad before embarking on a 15-year career investigating financial crime and advising banks, estimates that the cost of recovering that £46 million was more than £400 million. Surely we can get better value for money but if we can't then those responsible need to account for their expenditure just as the IFA is made to account for his income?

 

HOW MUCH DOES FSA REGULATION COST FOR GENERAL BUSINESS

 

With insurers passing on the cost of complying with the FSA's rules, and policyholders failing to search for the cheapest cover, consumers were paying £400 million more than necessary for products such as motor, household and travel insurance, the ABI found. Stephen Haddrill, director-general of the ABI, told The Times (March 2006) that Britons, who buy 70 million retail general insurance products every year, were "bombarded" with information they did not want, which put them off searching for the best deal. "The system must be overhauled," Mr Haddrill said. "Customers need regulation to set out the principles to ensure fair treatment, not prescribe how every telephone call they make is handled and sales brochure written."

 

WHY DOES THE FINANCIAL ASSISTANCE SCHEME COST 50 TIMES AS MUCH TO RUN AS IT PAYS OUT?

 

The Government scheme to help people who have lost out on company pensions is costing 50 times as much to run as it has paid out. The Financial Assistance Scheme, set up in 2004, has so far given only £100,000 to 32 people affected by the failure of pension schemes. A parliamentary answer disclosed 31/03/06 that the FAS has so far cost more than £5 million to run, including £135,000 consultants' fees. Stephen Timms, a work and pensions minister, disclosed that in 2004/05, the FAS cost £1 million for administration and £4.2 million in 2005/06. At that rate, administration will eat up a quarter of the £400 million pledged by ministers to assist victims over the next 20 years.

 

THE COST OF THE NPSS

 

The Association of British Insurers (ABI) has admitted it is worried about the prospect of a National Pension Savings Scheme (NPSS) or an appropriate alternative not breaking even 30 years.

 

TOTAL COST

 

A survey from the British Chambers of Commerce suggests the cumulative cost of regulations introduced since 1998 is £38.9 billion.


MISCELLANEOUS FSA EXPENDITURE

 

FSA spent £103,890 on entertainment for Christmas 2005. Source: Freedom of Information Act 2000 (the Act) ref F010306 22.08.05

FSA spent £1,601,641 on foreign travel 2005 Source: Freedom of Information Act 2000 (the Act) ref FOI0307

 

HOW MUCH DOES A TAXI HOME COST FOR AN FSA MEMBER?

 

The FSA paid £590 to take FSA member Lord Eatwell home by taxi after a speaking engagement.

 

HOW MUCH CAN WE EXPECT TO PAY FOR THE FSA FINAL SALARY PENSION?

 

In its latest annual report, the Financial Services Authority said the deficit in its in-house final salary scheme stood at £80m. However, if it comes to the crunch, the FSA can always make up the shorfall by increasing the fees that it charges regulated firms. Did you know the FSA has  statutory powers to raise fees to allow them to meet pension shortfalls?  The regulator's business plan for 2006/07, reveals that it had initially budgeted to pay in an extra £6m to address the deficit in its final salary scheme, which closed to new employees in 1998. However, the FSA now plans to put in a further £3.7m, the document states. The additional payment is possible because the FSA's revenues from the companies it regulates have consistently exceeded its expectations. Last year, for instance, it recorded an excess of £8.8m.

 

HOW MUCH DOES IT COST WHEN THE FSA PASSES THE BUCK?

 

Interestingly the FSA denies liability for pre FSA Regulators. However, when it comes to pre FSA final salary pension benefits they are not so quick to disassociate, claiming pre FSA former years service. So what then is the truth? A quick visit to Companies House bears evidence to the facts.  The pedigree of changed names indicates that regulatory Musketeers are in fact: "one for all and all for one" i.e. all former FS Regulators rolled into one.  Would it not be reasonable to expect the FSA to accept its pension rights along with its regulatory responsibility?


WHICH IS GREATER - THE COST OF MIS SALES OR MISREGULATION

 

When is a guarantee not a guarantee? When the FSA says so! The Financial Services Authority (FSA) instigated a pension review that cost insurers and financial advisers at least £11.8bn in compensation payments. However, The FSA shares the blame for the company pension crisis by wrongly telling employees that their pensions were "guaranteed". Yet the FSA is refusing to accept for itself the same standards of accuracy and fairness that it imposes on financial services companies. A complaint alleging that the Financial Services Authority, which regulates the sale of personal pensions, acted carelessly when it produced booklets that described occupational pensions as "guaranteed" has been sent to the Parliamentary Ombudsman, the watchdog. The complaint, which was compiled by Ros Altman, an expert in pension economics who has advised Tony Blair, is directed against the Treasury, Inland Revenue, Financial Services Authority and the Occupational Pensions Regulatory Authority.

 

HOW MUCH DID IT COST TO ATTEMPT TO REMOVE DISTRIBUTION COSTS FROM PRODUCTS

 

CP121. A hugely important paper pushed through by the FSA with a direct impact on an industry numbering 64,000, in spite of the their survey sample numbering no more than 20 people (on the issue of fees) and a consultation response template set up by the FSA to construct and allow only those views deemed appropriate by the FSA. Thousands, if not millions spent ending up with the farse of the IDD (yet more paper) and now we have the ABI starting all over again! A further £4,000,000 has just been spent on Ivan Lewis MP recent Stakeholder promotion.

 

HOW MUCH DOES IT COST TO DEFEND AGAINST SPURIOUS COMPLAINTS
Consider the FSA Ombudsman. A service that allows spurious complaints with a win or loose fee levied on the IFA of £385.00 - only recently reduced from £500.00. A service, that allows a client to fine an IFA firm without any basis to his complaint and an Ombudsman that then binds the IFA but not the complainant. An impartial service that publishes material on how to complain and now even regulates non-regulated business retropsectivly (if it feels like it). Following a five year period during which the number of complaints to the ombudsman service has increased more than fourfold and the service has now almost tripled in size! Following an expected 28% annual increase in the total number of disputes resolved by the service in the current financial year (2005/06), the number is anticipated to rise again in the next financial year (2006/07) to a record 125,000 cases. The full cost of staff recruited in recent years to deal with the increased volumes of complaints  together with planned capital expenditure on phone and IT systems - means that operating costs in 2006/07, at £58.9m, are forecast to be 10% higher than in 2005/06. The corporate plan & 2006/07 budget are on the ombudsman service website at:
http://www.financial-ombudsman.org.uk/publications/pb06/index.html


HOW MUCH DOES IT COST TO DEFEND AGAINST RETROSPECTIVE REGULATION
Consider the PI situation where insurers will not offer cover because they are unable to quantify the next move by the FSA in their retrospective onslaught.
Consider the endowment review, which demands premature compensation on a projected shortfall that may not be quantified until maturity date. What happens when the market recovers from recent falls? A shortfall in part caused by former regulatory insistence on the use of LAUTRO growth rates rather than the more accurate “Own Company Charges”.

 

THE FSA IDEA OF EASY TO DO BUSINESS WITH
Mark Threipland, an FSA lawyer, said: "We have launched the tailored handbooks as part of our commitment to make the FSA easier to do business with".  So what is the FSA idea of helping the small business? The smaller rulebook is 1,000 pages long - about the same size as Tolstoy's War and Peace!!!! Still this is better that the full 10,000 page handbook which still exists for larger firms. Now just imagine how much all this costs to put together?


THE HOUSE OF LORDS WANT A VALUE FOR MONEY REVIEW OF THE FSA
The House of Lord Select Committee on the Constitution 12 Report 2003-04 proposed that The National Audit Office (NAO) should have access consistently to all regulatory bodies, including the Financial Services Agency (FSA), with a view to monitoring their cost-effective and budgetary controls. The government response was: The FSA is a private company limited by guarantee and it is directly financed by the industry. As such it implements the audit requirements applicable under company law. The FSA has no financial relationship with Government or Parliament and is not to be regarded as acting on behalf of the Crown.  However, In a written statement to Parliament in November 2003, the Financial Secretary to the Treasury stated,

 

 “I would regard it as unusual for there to be more than five years between value for money reviews of the FSA.”  Treasury ministers are accountable to Parliament in exercising this power.

 

My comment: The FSMA came into force in the years 2000. I am not aware that Treasury has invited the National Audit Office to conduct any such review of the FSA with regard to monitoring their cost-effective and budgetary controls. If this is the case would not the Financial Secretary regard this as unusual as we enter the new year of 2006? When does the Treasury propose to invite the NAO to conduct such a review of one the the most powerful regulators in the world?

 

WAS THE HOUSE OF LORDS MISLED WHEN THEY WANTED A VALUE FOR MONEY REVIEW OF THE FSA?

The Treasury Committee, as determined by the House of Commons would imply that the HoL was misled as it said: "The remit of the Treasury Committee, as determined by the House of Commons, is to examine the expenditure, administration and policy of HM Treasury, the Board of the Inland Revenue, the Board of HM Customs and Excise, and associated public bodies, including the Bank of England and the Financial Services Authority."

http://tinyurl.co.uk/dova   http://tinyurl.co.uk/silx  'Associated public bodies', I thought the HoL was told the FSA was a private company? This is a little game they play in order to duck and dive and shift responsibility. I call this the FSA standard myth. It seems pretty clear to anyone with half a brain the FOS is part of the FSA and that the FSA is the instrument of the government because they are both part of the regulatory regime and subject to Parliamentary control – in particular Gordon Brown and the Treasury! If it walks like a duck and talks like a duck then it’s a duck ...that is unless it happens to be the duck hunting season!

 


WE NEED LESS NOT MORE - JUST LOOK AT WHAT HAPPENS WHEN YOU HAVE AN OPNEN CHEQUE BOOK:

The Stakeholder Pension Schemes Regulation 2000

Regulation introduced  2000 May–00 Apr–01 

One-off admin cost £100m       

Recurring cost     £76m       

Total cost by July 2006 £499m

 

The Occupational Pension Schemes (Minimum

Funding Requirement and Miscellaneous

Amendments)

Regulation introduced 2002 Feb–02 Apr–02 0    

One-off admin cost £ 0m        

Rrecurring cost     £50m         

Total cost by July 2006 £212m

 

Regulating Insurance Mediation

Regulation introduced Jun–03 Jan 05    

One-off admin cost £60m        

Rrecurring cost     £90m         

Total cost by July 2006 £195m

 

Regulating Mortgages

Regulation introduced  Jun–03 Jan 05  

One-off admin cost £145m        

Rrecurring cost     £120m         

Total cost by July 2006 £325m

 

The Occupational Pension Schemes (Winding

Up and Deficiency on Winding Up etc.)

(Amendment) Regulations

Regulation introduced  Feb–04 Mar–04 0   

One-off admin cost £0m        

Rrecurring cost     £70m         

Total cost by July 2006 £163m

 

//www.chamberonline.co.uk/policy/pdf/budens_bar2006.pdfhttp://www.chamberonline.co.uk/policy/pdf/budens_bar2006.pdfurc

Grand Total = £1394 million 

1998

http://www.chamberonline.co.uk/policy/pdf/budens_bar2006.pdf

 

Notes

The Barometer is compiled each year from the data in the Regulatory Impact Assessments (RIAs) produced by government departments up to the prior 30th June extended to include the year in which the report appears, i.e. 30 June 2006 in this case. http://www.chamberonline.co.uk/policy/pdf/budens_bar2006.pdf