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L&P industry under attack from all sides

L&P industry under attack from all sides

Goldman Sachs plays into the hands of the regulation mob

The recent travails of Goldman Sachs certainly inspire more schadenfreude than sympathy at first glance, but the effect over the weeks since the news first broke has been to strengthen the hand of those who wish to regulate financial services out of existence. The temptation for all national regulators is to take the approach of putting in excessive amounts of rules in the belief that they can make it impossible for fraud to happen. Invariably this will fail, proving once again the agility of man to circumvent rules when it is in their own interest.

However, for the majority of companies who comply with the regulations, their business opportunities are stifled by these regulations and it will put enormous extra cost into the business, cost that ultimately has to be born by the consumer.

If governments and international bodies could resist the temptation to legislate utopia, they would see that current regulation is usually sufficient to ensure the free operation of the market. What is required is better enforcement so that the price of fraud is raised to outweigh the benefits. This is a cheaper and better approach, which also avoids inhibiting those who are ethical in their business.

But it is too much to hope that the political set will aim for an approach that achieves results, rather than go for one which attracts publicity. Just as it’s too much to hope for that they will focus on the businesses which caused the problem rather than applying new regulations across the entire financial services sector and hitting the innocent insurance industry at the same time.

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IMF tax – blunt instrument

A good example of this scattergun approach is the IMF’s recent suggestion to the G20 that two new taxes be applied to the banks, insurance companies and fund managers. These taxes, a Financial Stability Contribution and a Financial Activities Tax, (is the acronym FAT a subliminal reference to fat cats?), are to be applied to ensure that there is a fund built up to cover defaults in the future.

It begs the question; why are the insurers being picked on? Given that the current world problems were caused by the banking sector why does the IMF feel the need to make the insurers pay? Among insurers, only AIG got into trouble and it is a large conglomerate whose problems stemmed from its banking side. It seems even the IMF is falling prey to the politicians’ syllogism; “We must do something; this is something, therefore we must do this.”

Meanwhile, they are proposing to penalise the prudent alongside the reckless and once again the consumer will be the only loser.

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HMRC extends inheritance tax remit in the UK

In a surprise victory, the courts have given judgement to allow HMRC to subject pension funds to inheritance tax in cases where the savers have delayed drawing down their benefits. Up to now, HMRC have restricted their examinations to situations involving terminal illness.

It appears that the Revenue have decided to ignore actual income needs and to assume that a deferral is an attempt to avoid IHT. In a world where people need to work longer, and have good reasons for deferring drawing down their benefits in order to make them last longer, this is a counterintuitive move.

It will work against the current policy of encouraging people to take out pensions as it looks like they will be penalised if they don’t draw down their benefits at a date arbitrarily chosen many years earlier when they purchased the pension. There really is a need for joined up thinking between HMRC and the Department of Work and Pensions.

Tom Murray

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