The Personal Finance Society has made a timely call for more ‘proportional’ regulation following the publication by the FCA of its new three year business strategy plan, which arrived recently along with news of some chunky fee increases.

The PFS is concerned, with good reason, that the FCA's promised tougher approach may mean an increased and unwelcome burden on the smaller firms which form much of its membership.

A close read of the new FCA strategy and recent comments from the regulator do indeed suggest a tougher approach coming down the line from the FCA.

The FCA has been stung by criticism of its handling of the BSPS saga, the London Capital & Finance (LCF) mini-bond debacle and the rest. It does not want repeats.

In its new business strategy the FCA says it wants to “prevent serious harm, set higher standards and promote competition.”

FCA CEO Nikhil Rathi last year also committed the regulator to becoming, “more innovative, assertive and adaptive.” Again, you have to read between the lines to consider what he meant but the indications are that the FCA will try to act quicker and more decisively when it spots any potential consumer harm. Failing to act fast enough played a major role in the BSPS and LCF cases.

A new consumer duty, yet to be seen in practice, could also mean bigger burden of regulation.

Looking at more factual evidence, the FCA has restructured and beefed up many of its departments and changed senior roles recently, it is recruiting nearly 100 more authorisation staff and is making a big push into data monitoring.

This new approach may, inadvertently, mean a heavier hand on smaller firms, which is what the PFS is concerned about.

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The professional body says it’s fine having a tougher line but regulation, or any change to regulation, must be “proportional” and many will agree with that.

There is a great difference between a Financial Planning business formed a year ago with lots of hopes and ideas and a wealth manager with 4,000 or more staff or a bank with tens of thousands of staff. 

There have been many critics who have claimed the FCA wants to force out the smaller operator but I do not believe the regulator is anti-small IFA. I do believe that it may be 'accidentally' squeezing out smaller firms with a regulatory regime more suited to larger firms.

It is fair to point out here that many of the firms that collapse and leave their mess behind for the FSCS to sort out are smaller firms, although not all are in this category.

The PFS call is one the FCA should take on board. The FCA needs to be careful about killing off the ability of entrepreneurs, innovators and disruptors to launch new firms and also to avoid damaging smaller firms which do an excellent job for their clients year after year. Small is often an appropriate business choice for many Financial Planners, not a weakness.

Regulation of smaller firms should not be lenient but it should take into account the unique characteristics of small, innovative firms. Costs should be kept down and regulatory red tape reduced to a minimum. Much closer monitoring of data from these firms could be the way to do this.

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Kevin O’Donnell is editor of Financial Planning Today and a journalist with 40 years of experience in finance, business and mainstream news. This topical comment on the Financial Planning news appears most weeks, usually on Fridays but occasionally other days. Follow @FPT_Kevin • If you have not yet registered for Financial Planning Today as a subscriber please do so now. It's free to sign up.

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