17th May 2011

FSA - A little bit of history repeating itself?

For those who have a keen interest in history, and not Shirley Bassey, it will be a given that not much happens that is new in this world and that many of today’s events relating to wars, politics, crime, violence, economic crashes, scams and oppression are often cases of history simply repeating itself with nobody learning anything, no matter how dire the act or situation is.

My wife, not one who would normally associate herself with a keen interest in regulatory matters, made an observation that made me sit up with a jolt when watching that excellent series on ‘Hitler’s Bodyguards’ this week. All will become clear to you (by reading on) as it did to me I am sure

The starting point for her thought process focused, naturally of course on the Enabling Act of March 1933 in Germany.

In the March elections of 1933 the Nazi party had hoped to obtain an absolute majority that would allow them to rule without too much interference, but as they only got 44 percent of the votes, they needed to find another way to establish the dictatorship they yearned for.

The way forward was to sponsor the Enabling Act, a bill that would give Hitler’s government dictatorial powers for four years.

To make sure the law passed, opponents were locked up and action was taken to ‘soften’ up public opinion, especially among the conservative parties. Several days before the elections, the Nazis held a meticulously staged ceremony in Potsdam. Hitler was depicted as a conservative national leader and not as the head of a radical, murderous party. He promised that the law would, in no way, be detrimental to the workings of the Reichstag, the presidency, and the municipal government.

The moment the Act passed, however, the democratic constitution was quashed and the rule of the Nazi Party faced no further obstacles. As a result, on 23^rd March 1933, Hitler pushed the Enabling Act through the Reichstag, providing his government with dictatorial powers, first for four years and afterwards indefinitely.

The regime then created a new law to take away the democratic freedoms and at the same time ridding the state of political parties and organizations it did not like. Thus, in this quasi-legal process, a Hitler dictatorship was now on solid ground.

The Enabling Act is an excellent example of how to remove power from governing institutions, but in not destroying them the party succeeded in portraying the dictatorship as a soundly functioning state. The German parliamentary structure of 1933 had by careful manipulation of the system lost everything it had stood for to the new order created for Germany.

Hitler could do anything he pleased, by destroying all opposition and creating the establishment of a new and pure German-racial society. The great experiment was underway.

Well this week has seen a further issue of instructions, diktats and reporting requirements from the FSA. The latest FSA data collection requirements are vast and varied.

The regulator plans to extend the level of information collected through the RMAR for all firms that provide retail investment products.

Retail investment advisers, according to MM will have to breakdown their advising charging structure to notify the FSA whether the firm is providing independent or restricted advice, initial or ongoing advice, and whether payment is collected directly from clients, via product providers or via platforms.

Consultancy charges relating to group schemes will too be subject to the new proposals. The FSA is also planning to link complaint data to all investment advisers’ individual reference numbers, and adding complaints data to existing reporting on individuals.

Firms will have to provide information when a complaint against an adviser is made, not the firm as the current rules require, and irrespective of whether the complaint is upheld.

But why? The FSA reckon it will help to supervise the RDR rules on a “business as usual basis” from December 31^st 2012, at both firm and sector level - consistent with the emerging risk model for the FCA. But how is this model being constructed, what are the drivers?

When will this constant tinkering and tightening of the regulatory framework stop? Has it gone too far and at what cost? The powers given to the FSA under FSMA 2000 are enormous and despite TSC advice given to the Treasury to write a new act, this will not it seems happen.

At this rate the new regulator will have nothing to do as the FSA has in effect utilised it’s powers under FSMA 2000 to create it’s own version of the Enabling Act.

The RDR then is an excellent example of the way the FSA is taking away power from Parliament yet at the same time they are succeeding in portraying the implementation of new regulations as if they are a soundly functioning fair and reasonable regulator.

Hector Sants said “You should be very afraid” and I think if all this goes through, he could very well be a man of his word, according to my wife!

FSA/FCA, RDR, Panacea Comment