Critically Assess The Impact Of The Financial Serv

2097 words - 9 pages

The Financial Services Act 1986 came as a result of Margaret Thatcher¡¦s reforming of the infrastructure in British society. Its main objective was to provide a coherent legal framework for the regulation of financial services and protection of investors. At the time, the government encouraged people for a wider share ownership and privatisation was a duty in Thatcher¡¦s policy philosophy. Scandals also played an important role in Parliament¡¦s decision to provide the financial industry an act that everyone could rely on and work out from. At the time, information technology was brought more and more into the industry and innovation and development led ...view middle of the document...

¡¨ The already existing Securities and Investment Board (SIB) was delegated powers to authorise persons, make rules along the way and recognise SROs. Some controversy was displayed over this decision since the SIB was a private company. A draft rulebook was produced by the SIB, designed to cover those directly authorised by the SIB, and not persons who are members of the SROs. However, the rulebook provided a standard that the SROs had to meet in order for their rules to give equivalent protection.The UK regulatory system was now moving towards the US system, introducing self-regulation with a supervisory unit to guide and control it. A system of self-regulation can put weight on a firm¡¦s shoulders, but at the same time the firm can benefit from it in many different ways. On the downside, self-regulation can bring a lack of impartiality of monitors. To be too close to the industry you are dealing in can make it hard to take an objective view of a matter. Secondly, cost of entry may lead to creation of monopolies and compliance costs can push small firms out of a competitive market. Thirdly, lack of transparency/secrecy of practices can create problems for a self-regulating firm.On the upside, cost distribution and efficiency are the two main features. Valuable resources, both human and capital, can be utilised where they are needed most and people already have knowledge in the sector of the industry. Another way of efficiency to mention is that firms do not have to worry about a bureaucratic regulatory unit with the possibility of agents without sufficient skills and knowledge. A self-regulated system funds itself and is no burden for taxpayers. Lastly, a self-regulatory system has the ability to adjust itself far quicker than a regulatory system that covered all financial services.To examine the system of regulation, we will obviously find positive point as well as negative points but three major problems were recognised by Mark Boleat, Director General of the Association of British Insurers. The first issue was the two-tier system involving the SROs. ¡§There is a division of responsibility and lack of clear ownership of the regulatory system.¡¨ He said this on the basis of a report that also included evidence of competition between the SROs and the SIB. A one tier regulatory system would be preferable with the industry¡¦s involvement coming through proper representation by trade bodies and individual organisations. The second problem Mr Boleat found in the regulatory system was the concept of polarisation. Investors have many needs and the regulatory system did not provide a unit that was specialised within e.g. financial advice or information on decision making. Instead it provided the financial industry with an all-or-nothing solution, which for many was unsatisfactory. Consumers should be able to decide what and how much information they need, without being forced to receive...

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