Blog: FSA has slipped up with platform definition

I guess it was always inevitable. The first paper, DP 10/2, proposed the ban on rebates to platforms, to the dismay of the fund supermarkets; the second paper, CP 10/29 proposed a ban on cash rebates, bringing foreseeable, albeit slightly muted, protests from the wrap platforms.

So it was always likely that paper three, PS 11/9 went straight down the middle - ban everything, but not now!

So now there will be yet more research. You cannot help but wonder why all requisite research wasn't carried out before paper DP 10/2.

Now RDR will go ahead without any definitive proposals on platform remuneration. Looking for the positive, at least it means that platforms will not have to rush through system development to cope with new regulations in short time. Such IT developments are inevitable expensive and tend to be less than robust.

For me, one of their mistakes has been in trying to define a platform. As Paul Bradshaw said years ago, ‘A platform is just a very expensive piece of software.' The one certainty about anything in information technology is that it will be different next year and very different in a few years time. Regulation should always been about outcomes when it comes to IT.

CP 10/29 stated that ‘The firms to whom the proposed platform definition is intended to apply are the firms that are commonly referred to as funds supermarkets and wrap platforms. Their primary function is to provide administration services.' Many would argue with that.

In PS 11/9, they make what seems a rather odd statement, ‘Our definition of a platform service does not include a description of its primary or core functions.' They then admit that the core function may evolve over time. Too true.

When one looks at a proposition like True Potential's with SEI, which is the platform? SEI provides custody and administration; TP provides the front end including tax wrappers. It won't get easier as the value chain fragments further.

So then we see that SIPP does not fall within the definition because a SIPP is a retail investment product, whereas ISA managers are likely to get caught, because an ISA in not an investment product. To most of us they are both tax wrappers in which funds or share and bonds can be held. In effect they are single wrapper wraps - unless you are a regulator, of course. Lots of scope for misunderstanding and confusion.

Ultimately, it looks like we will get a level playing field. Cash rebates will be banned, but so will payments to platforms as well. Don't hold your breath though. They know there are problems in finding solutions, hence yet more research and yet more delay.

So, the outcome is postponed until after RDR. Given that all energy at Canary Wharf will be focused on 31 December 2012 and that a new regulator will be taking over, one can't help but wonder when we will get a result.