Summer? the Struggle with Corruption for the Economy That Could Be King, Page 12
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Securities & INVESTMENT june 2011 REthe members’ magazine of theVIEW chartered institute for securities & investment cisi.org/s&ir Indian summer? The struggle with corruption for the economy that could be king, page 12 Christopher Adams What the Standard & Poor’s downgrade means for US prospects, p11 Gabriel Bernardino The head of Europe’s insurance and pensions regulator on Frankfurt and family, p18 Vickers’ world The devil in the detail of the Independent Commission on Banking’s interim report, p20 Securities & Investment june 2011 REVIEW Editor Hugo Cox Senior Designer Pip Atkinson 18 Art Director Steven Gibbon 12 Publisher David Poulton Agency Managing Editor Molly Bennett Production Director John Faulkner Managing Director Claire Oldfield Chief Executive Martin MacConnol Advertising Sales Yanina Stachura +44 (0)20 7907 4803 [email protected] 16 Cover illustration Stuart Briers Published on behalf of the Chartered Institute for Securities & Investment by Wardour, Walmar House, 296 Regent Street, London W1B 3AW Telephone: +44 (0)20 7016 2555 Fax: +44 (0)20 7907 4820 www.wardour.co.uk ISSN: 1357-7069 Communications Editor, Chartered Institute for Securities & Investment Richard Mitchell 8 Eastcheap, London EC3M 1AE Telephone: +44 (0)20 7645 0749 Contents Email: [email protected] Editorial panel Features Members’ features Regulars Nick Seaward, Institute of Education 12 cover story: 22 cpd: measuring 5 city view Chartered FCSI, Chairman Suren Chellappah FCSI Sanford C Bernstein honest growth the impact Better consumer protection Moorad Choudhry FCSI Royal Bank of Scotland Tamsin Brown asks whether Impact investing, still in its must not muddle the principle Simon Culhane, Chartered Institute for Chartered FCSI Securities & Investment recent efforts to combat infancy, is a sector to look out of ‘buyer beware’ Scott Dobbie FCSI(Hon) Deutsche Bank corruption in India may for, says Ritchie Macdonald Matthew Glass, CME Clearing Europe provide the catalyst for the Chartered FCSI 6 upfront Mike Gould FCSI Russell Investments country’s regional ascendancy 24 margin for error News and views from Paul Harris, JP Morgan Chase Following an undetected Chartered FCSI members of the Chartered reporting mistake, should a Victoria Hoskins, Barclays Wealth 16 swimming together Institute for Securities & Chartered FCSI firm of stockbrokers own up Paul Loughlin, Rathbone Investment What is causing the Investment (CISI), including Chartered MCSI Management increasing correlation of or keep the money? our regular back story by Robert Merrifield FCSI Savoy Investment Management global stock markets? James Clay ‘Mudlark’ Harris 26 need to read Richard Mitchell Chartered Institute for Gavin investigates Securities & Investment Catch up with this Mark Otto, Chartered FCSI New Europe Advisers 11 first person Frank Reardon, JM Finn month’s essential reading Chartered FCSI 20 splitting up Christopher Adams on what Patricia Robertson, Westport Global Tamsin Brown looks at the the Standard & Poor’s debt Chartered FCSI 27 diary Jeremy Robinson, Charles Stanley potential impact of the CISI events and new downgrade means for the US Chartered MCSI Independent Commission Hamish Rowan-Hamilton Veridicus Ltd member admissions Markus Ruetimann FCSI Schroder Investment on Banking’s interim report 18 profile: Management 30 people: window on gabriel bernardino Nimrod Schwarzmann FCSI RBS Global Markets Arjuna Sittampalam, Sage & Hermes the past The Chairman of the European Chartered MCSI Andrew Bradford ACSI Insurance and Occupational Nigel Sydenham, C. Hoare & Co Chartered MCSI on writing a compelling Pensions Authority (EIOPA) Alan Yarrow, Chartered Institute for Chartered FCSI(Hon) Securities & Investment family memoir talks to Hugo Cox Average audited circulation: 17,558 for period July '09 — June '10 © The Chartered Institute for Securities & Investment (CISI). All rights reserved. Reproduction in whole or part prohibited without prior permission of the CISI. The CISI and Wardour accept no responsibility for the views expressed by contributors to the Securities & Investment Review; or for unsolicited manuscripts, photographs or illustrations; or for errors in articles or advertisements in the Securities & Investment Review. The views expressed in the Securities & Investment Review are not necessarily those held by the CISI or its members. 3 city view Buyer beware cisi opinion The FSA is right to push for better consumer protection, but this should not mean making the buyer exempt from responsibility for their purchase launching a far-reaching discussion pensions, mortgage endowments, mortgages, products are FSA-approved and insured, paper (DP), Product Intervention DP11/1, current accounts and, most recently, payment a view that a lot of people already hold. in January, FSA Chairman Lord Turner protection insurance (PPI), together with a Many consumers may find even a called for a radical rethink of consumer raft of payments for the failure of firms or simple financial product hard to understand, protection in the UK. This included products, or for providing unsuitable advice. but this does not mean that the concept of proposals to consider fee caps and ban The cash costs are enormous: for example, ‘caveat emptor’ or ‘buyer beware’ should non-advised sales and some financial pension misselling cost £11.8bn and PPI not apply to any financial services products products. Although the CISI welcomes the compensation is estimated at £9bn, which in the same way as it applies to all others. openness with which the FSA has initiated dwarfs the £195m cost of the split capital Nor should we seek to prevent ‘non-advised debate in an area of such importance to our investment trust saga and the £247m cost of sales’, denying individuals the right to make members, the suggested transition to a more the recent Keydata debacle. It their own decisions – and mistakes. As the intrusive and interventionist regulatory is, however, impossible to quantify the cost regulatory framework evolves, the FSA environment brings with it challenges to the industry of business lost from the and its successor, the Financial Conduct and responsibilities that may prove hard resulting lack of confidence in the sector. Authority, must ensure that consumers’ for both the industry and the regulator to rights are matched by a need to meet. Responses to the DP by take responsibility for their actions. leading trade bodies across insurance (the There are concerns that More prominent risk warnings and Association of British Insurers), banking more effective promotion of existing (the British Bankers’ Association) and greater intervention will risk consumer educational resources on private client investment (the Association stifling innovation, impairing the internet, rather than a general of Private Client Investment Managers dumbing down of products, must and Stockbrokers) have now highlighted competition and reducing be the way forward. a number of commercial concerns. The The industry is already undergoing message to the FSA is that a more balanced consumer choice significant turmoil as it prepares to approach to consumer protection is implement the requirements of the required that reflects the diversity of the Clearly, it is in the interests of all industry RDR at the end of 2012. Introducing yet more UK’s retail financial services industry. For members to reduce misselling, which is, in significant change before this new regime example, there are concerns that, while the part, why the FSA introduced the Retail has become established is not without risk, regulator’s insistence on a more rigorous Distribution Review (RDR). especially since it comes at a time when product development and product lifecycle However, the FSA already has significant the industry is struggling with the higher management process will help to increase powers to regulate the UK retail financial costs associated with increased regulatory consumer confidence, greater intervention services industry and must be wary of intervention and with the continued aftermath will risk stifling innovation, impairing extending its powers further or setting of the credit crisis. While implementing competition and reducing consumer choice. objectives that it will not be able to achieve. many of the themes discussed in the paper Over the past two decades, the If the regulator is able to pre-approve all would improve consumer outcomes, any financial services industry has been hit by products, ban products or prohibit certain approach must reflect the industry’s capacity a succession of compensation costs. These features, it will inevitably lead retail clients to cope with further change, be balanced and costs have been associated with misselling of to believe that all retail financial services be carefully executed. 5 Upfront News and views from the CISI islamic finance News in brief Certificate success More than 70 candidates who have passed one of the CISI’s Certificate exams attended a recent reception to celebrate their success. The event, at Pewterers’ Hall in the City of London, was hosted by the CISI From left, Lina Gharib, and Brian Winterflood FCSI(Hon), representative of the Banque Life President, Winterflood du Liban, Stéphane Attali, Securities. The Certificate ESA Dean and Director General, and Ruth Martin, achievers were particularly CISI Managing Director from the wholesale sector. Under pressure? The S&IR will next month include Arabic IFQ launched an article about the working culture in financial services