Don’t be ‘hoodwinked’ over rules, SRA warned
A former senior City watchdog has warned the Solicitors Regulation Authority that it is being ‘hoodwinked’ into liberalising rules relating to financial advisers.
The SRA is set to reveal whether it will relax a rule requiring lawyers to refer clients to wholly independent advisers. Arguing that current regulations are too prescriptive and incompatible with outcomes-focused regulation, the SRA wants solicitors’ clients to be offered the choice of advisers who are contracted to sell financial products.
However, David Severn (pictured), head of retail investment policy at the Financial Services Authority from 1998 to 2004, said the SRA had ‘allowed itself to be hoodwinked’ by those who claim the current rules do not accord with an outcomes-focused approach.
‘The fact is that there is a false dichotomy here,’ he says in his submission to the SRA consultation. ‘Any regulator should be prepared to use the tools that best meet the needs of a particular case.
‘A regulator should not abandon the use of one tool simply so that it can slavishly adhere to a general approach in its regulatory style. In the present case there is a key client protection issue at stake.’ Severn says biased advice, contingent on making sales, would offer less protection to clients.
Solicitors, he warns, could suffer reputational damage if the clients they refer experience an inferior service as a result.
To perform a referral with due diligence, Severn says solicitors would have to conduct a ‘considerable amount of research’, determining the limitations of a restricted financial adviser and explaining those limitations and their consequences to clients.
Severn recommends that if the rules do need to be changed, solicitors should be required to refer clients to more than one firm, of which at least one would be wholly independent. The SRA is due to announce its plans on 17 October but has already stated its preference for scrapping rules requiring referrals to wholly independent advisers.
A consultation paper released last month admitted the proposal was ‘controversial’ but said the lawyer and client would work together to decide whether an independent or restricted adviser would be the best choice.
Comments
It is becoming more and more
It is becoming more and more apparent, that with the Judges almost always assuming that if a solicitor had been involved in a given set of circumstances and loss had been suffered by a client that the solicitor must have been culpable, that the SRA is capable of displaying a breathtaking ignorance of risk management. Hang on I feel a cliche coming on but needs must: " If it aint broke dont fix it " as the Americans would say.
This also shows the SRA, the Law Society's hideous creation in response to the Legal Services Act, as seeming hellbent on dismantling the ethical infrastructure of the Profession at every turn.
The consultation paper is a further example of the tensions created by the Act with the SRA instead of resolving the dilemmas inherent in such tensions, seeking to compound them with classic mission creep at the Professions expense.
Does the Law Society now get it?