For immediate release Thursday 11 June 1998
PRODUCT REGULATION AND BENCHMARKING
At an IEA Conference, "The Future of UK Financial Regulation"
Philip Warland, the Director General of the Association of
Unit Trusts and Investment Funds set out the benefits and
disadvantages of production regulation and pointed to the
beneficial effects the Treasury’s proposals on benchmarking
could have, but expressed concern about the lack of a distinction
based on risk between the different ISA asset classes. He
went on to propose what the risk classifications might be.
He said:
"Product regulation can bring benefits to the consumer
of safety, certainty and low cost. But it does require the
regulator to be a constructive regulator if these benefits
are to be optimised for the consumer."
On benchmarking he said:
"The internal logic of the Treasury’s paper leads inexorably
to the conclusion that only easily accessible, capital certain
products can safely be benchmarked by the Government. It
may be that the investment funds industry itself can move
some way towards benchmarking, although it would have to
be done very carefully because some of the dangers which
I have pointed out in the Government’s attempts would persist
with the industry itself playing this role. Nonetheless
the industry does already, to an extent, enter into the
beginnings of benchmarking with the establishment of performance
category sectors which tend to be accepted by all, including
the regulators, as a fair and reasonable way to manage the
comparison of funds."
and went on:
"If the Government does not accept this conclusion and
persists in benchmarking equity products then I believe
that it should add a risk characteristic to the CAT tests.
And the risk criterion to be considered is not volatility
relative to an equity index but it is the simplest of all
risks, capital certainty.
So we could see three risk benchmarks.
- You can get your capital back at any time
- You can get your capital back after a stated period
- There is no guarantee of getting your capital back."
He concluded:
"I believe that the Treasury’s proposals on the CAT standards
could bring great benefit to all concerned but that as currently
proposed they carry with them two great political dangers.The
first is that there could be a rerun of the pensions mis-selling,
although in this case it will be a mis-buying problem. And
if the market were to fall substantially 6 months before
the next election, I am not sure that I would want to be
the Minister responsible for benchmarking. Secondly, the
Treasury’s proposals are likely to earn benchmarking a bad
name when benchmarking is very suitable for the sort of
product likely to occur with stakeholder pensions. Benchmarking
the equity portion of a discretionary savings products is
a very different matter indeed.I very much hope that the
Treasury will listen to our arguments and amend their proposals."
For further comment please contact:
Philip Warland, Director General, AUTIF, 0171
831 0898
Anne McMeehan, Director of Communications, AUTIF, 0171 831
0898
Susie Poote, Communications Assistant, AUTIF, 0171 831 0898
Notes to Editors:
The full text of the
speech is attached.
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