The state's latest antics put the priniciple in regulation

I’ve always believed that ‘reputation’ is very important, both from a personal and a business perspective. Your brand image is something you protect not just with an insurance policy. Northern Rock and others potentially affected by the knock-on-effects of the US sub-prime credit crisis highlight some of the problems around brand protection.

Another week and another apparent scandal – this time involving members of Parliament allegedly with special arrangements to maximise expense allowances to family members.

Whether it is inappropriate or inadequate business practice or controls, it is all having a detrimental effect on UK plc’s reputation and the financial services sector in particular.

The real question is – ‘Is our regulation working?’ Perhaps Government, and I mean all those in and around Government, should be regulated by the FSA - or a new GSA (Government Service Authority). That would be interesting, but would it make any difference? We could have a market failure analysis on just about everything in Government.

Ok I’ve lost the plot, but what’s the answer?

For me its principle based regulation with market lead solutions. Professionalism is another way to describe this. However, market solutions are not yet a working model which makes me question whether the FSA is serious about this approach. It may be serious about the idea, but can it find a way to implement and manage such an approach?

We’ve just had what I believe is the first forensic review in our sector. The subject being commission disclosure, involving a market failure analysis and cost benefit case, the result of which failed to justify mandating disclosure by the FSA.

That, one would have thought, should be the end of it but it is not. The FSA is still concerned that the intermediated business insurance sector is not transparent enough when it comes to our remuneration and will be issuing a discussion paper alongside an increased supervisory programme - a sort of carrot and stick.

Personally this is the biggest non-event for consumers and our sector under the FSA’s ’new’ regulatory regime for general insurance. But there are wider issues influencing this which must not be ignored, for example the EU’s competition review combined with their proposed review of the IMD, the Law Commission’s review of insurance contract law , not to mention all the different views from within our own sector and potentially a read across from the FSA’s retail distribution review..

In BIBA we believe we are aware of all the issues and arguments. We are in the process of having yet another attempt at suggesting a market solution in respect of greater transparency of remuneration for commercial customers. This is based on our existing proposals which we hope will allow us all to make this issue part of our normal and agreed business process. We can then all move on to more important customer or client matters.

That means a market solution with give and take on both sides. The FSA’s and our own sector’s reputation will be enhanced if we can achieve a workable solution.

However, not withstanding our success on contract certainty which was a wider cross sector issue and more of a market failure, I’m fearful that principle based regulation, market lead solutions and industry guidance are being overly complicated by the FSA. Remembering of course that a market solution is not a rule, only one recognised solution to an issue which should be ‘risk’ based and therefore proportionate.