Challenge of the FSA

Stuart Ross, Chairman of the Scottish Licensed Trade Association, has been quoted as complaining about the level of regulation faced by his members.

Mr Ross went on to say that “In 30 years’ service I have never encountered as much actual and potential regulation and bureaucracy as we are currently experiencing in Scotland.”

Mr Ross cited licensing law reform, responsible drinks promotions, minimum pricing regulation, the use of plastic instead of glass in late night venues, the methodology of rating assessments, the level of the uniform business rate and the way in which water is charged.

He added in the minimum wage, the introduction of international accounting standards, pension protection registration, asbestos regulations and the new disability discrimination regulations as examples of the way the licensed trade is being hampered by red tape.

Well, Mr Ross, we have news for you – you aren’t alone! It’s true that we don’t join the licensed trade (as the pedlars of materials harmful to one’s health) in the use of plastic instead of glass in late night venues. But we are sure that those of us involved in running businesses and in particular in running lawyers’ firms could point to most of that list as affecting us, and a good deal more.

We have the Solicitors (Scotland) Act 1980; three Codes of Conduct (including one from Europe); Practice Rules on conflict of interest, advertising, client communication in residential conveyancing, and on closing dates; Guidelines on mandates, destruction of titles, and faxes and emails. Gradually, over the years, the list of regulations grows longer and the systems we have had to put into place have grown bigger. Don’t we just love the money laundering regulations!

The latest bolt to arrive from the regulatory heavens is Financial Services Authority control over mortgage advice and general insurances. Now, if there was ever a sledgehammer to crack a nut or two, this is surely it. True, the Mortgage Code Compliance Board ran a voluntary system of regulation in respect of mortgages but it was fairly straightforward and easy to operate.

Introduce the FSA into anything and the whole thing becomes a great deal heavier. For mortgages it isn’t perhaps so bad because normally only one or two people in a solicitors’ firm have any involvement in mortgage advice. However, the introduction of general insurance as an area for FSA regulation has widened the whole net of their approach. It covers the “administration” of policies, for example, so if you’re collecting a premium, or filling in a proposal form for a client, these are covered.

Those few firms who are involved in providing direct investment advice have had to comply with significant FSA regulation for several years and it isn’t much fun. Add in these new layers, which involve most fee earners in most firms, and suddenly the problems start to escalate.

One thing, it’s going to cost us more money, although we might not easily identify it. Mortgage lenders say that the switchover costs for the industry amount to as much as £136 million. They think that the annual running cost will be £88 million – and more if the FSA tightens the rules further. Solicitors involved in mortgages will be bearing some small part of this, but not so small in relation to our own businesses.

It’s enough to drive one to drink (sadly, it does some) or, less enjoyably, out of practice. If it goes on like this, regulation is going to make all our jobs well nigh impossible.

It could be done so much better. First, no sledgehammers to crack nuts. If there are a few hard-luck cases, then… hard luck. Secondly, let’s have output-based compliance – compliance based on results rather than input, which is process-bound. Less paper, more objective assessment of actual incidents.

Assuming that the tide isn’t going to turn immediately, however, how are we going to cope and still be able to do the day job? It seems to us that firms of any size are going to have to have a dedicated compliance person – or share one with other firms. Sure, the partners are responsible and sure, they have to know the principles of what is required. But can we really ask them to do the whole process? Surely not – partners still have that day job to do. They need someone who understands systems and has the time to monitor results.

More time, more cost. So, why not share this resource? A well trained, knowledgeable compliance person could use the expertise and knowledge gained in one firm to help another. All it takes is a little co-operation.

Hang on, co-operation between law firms? Now there is a real challenge!

John Elliot is Chairman of Lindsays WS, Edinburgh

Colin Clark is a partner with Pagan Osborne, Cupar