Wealth manager trade association PIMFA has questioned whether the Financial Conduct Authority remains ‘fit for purpose’ and is capable of dealing with all the problems facing the financial sector without major reform.

In a paper published this week on the future of supervision - 'FCA Supervision – fit for purpose?’ - the body says too often when problems arise the FCA launches a Handbook review or a new policy rather than investigating underlying weaknesses in its own supervision.

The paper has been produced after months of evidence-gathering from firms and the FCA. It outlines PIMFA’s and its member’s key concerns, suggestions and feedback regarding supervision and its future in the UK.

PIMFA says individual firm failures “erode trust” in all regulated firms and damage consumer confidence and are too frequent and damaging.

The body is concerned about the rising costs of the Financial Services Compensation Scheme and Professional Indemnity insurance. It says these costs affect the profession, damage competitiveness and affect innovation.

The body points to the fact that fewer than 10% of UK consumers use financial advisers with many who do not blaming the cost of advice for avoiding advisers.

The paper, 'FCA Supervision – fit for purpose?' calls on the FCA to look at where it is falling short.

These areas include:

•Outlining how it assesses its own suitability as a supervisor;

•Improving data collection, as well as analysis, to better understand the activity of firms;

•Improving intelligence gathering and procedures; and

•Taking swift action where needed to prosecute firms for criminal offences 

PIMFA wants the FCA board to review the concerns and report on how it will improve regulation and mitigate the cost of claims on the FSCS.

Speaking on the FSCS issue Ian Cornwall, director of regulation at PIMFA said: “Clearly, we have significant concerns about the costs of funding the FSCS as it applies to firms. However, in our view, adapting how the levy is constructed, who it applies to etc. will only represent tinkering around the edges.

“Without an effective supervisory regime in place, UK firms will continue to fail or be allowed to perform poorly and levy costs – regardless of the methodology used to fund them - will continue to rise. Currently the cost of running the FSCS is comparable to funding the entirety of the FCA – it cannot be the case that these resources are being spent wisely if the cost of compensation is broadly equal to the cost of regulation.”

PIMFA chief executive, Liz Field said: “The UK wealth management and financial advice profession is the 2nd largest in the world, after the US. It manages approximately £1.5tn of investments and savings from individuals and families across all walks of life.  This critical industry is constantly evolving and, as such, requires a similarly evolving regulatory and supervisory practice to support it."

“The UK has an opportunity to revisit inherited EU regulations to better reflect the way the UK industry works and, ultimately, better serve investors.”