It is an interesting dilemma as I consider whether I should feel inclined to defend the FSA! Today, the FSA announced its annual business plan for 2010/11 and they have made some controversial (confrontational?) statements…
The plan shows an increased budget expenditure of 18.3% to £491m. Staff costs have increased by 16% as the regulator is recruiting 460 additional personnel to increase its supervisory activity – as Hector Sants has said, ‘a more intrusive regulator is going to cost more’. We should not forget that the regulator is responsible for more than just the Life and Pensions sector to which much of our core readership belong. Indeed, with the recommendations of the Turner Report, Solvency II, Basel enhancements, a more EU-centric regulatory influence and not forgetting our favourite subject of RDR, it is clear that there are many ‘spinning plates’ to handle. Added to this we also have the FSA talking recently about its intention to focus on what sort of ‘Product regulation’ it should apply (looking at Provider business models, product design, purpose, marketing and stress testing).
Reading the comments to articles in much of the financial press – mainly from IFAs – and it is clear that there is a strongly cynical attitude towards the FSA and its record on regulation. UK plc has often boasted in the past about the success of its ‘light touch’ regulatory regime applied to the wider Financial Services market. Many – perhaps with the benefit of hindsight – have questioned our dependence on the sector and its true value to the wider economy. As with the mis-selling scandals of the past (pensions, endowments and PPI), we seem to apply ‘acquired wisdom’ to how and why the warning signs were all too often dismissed or ignored – something that is evident in the latest crisis and will, no doubt, be repeated again in the future (crisis and calm cycles are as real as boom and bust).
The FSA (prompted by public opinion, political direction and a degree of self-justification) is now talking tough about what it is going to do. The pendulum of ‘light touch’ has swung to ‘intrusive and controversial’… Some of the commentators are crying foul about the tough stance being applied ‘evenly’ towards an IFA sector that has a good track record of behaviour. They have quoted comparative statistics that show the number of complaints against IFAs is relatively small [smaller] than the Banking sector. I recall a phrase from my past, that ‘there is nothing as unequal as treating people as equal’. I agree, and it is one of the difficulties that regulators face when applying standards and supervision that seems to focus on the lowest common denominator. The IFA community does feel that it is disparaged by the behaviour of other sectors – usually claimed to be Banks/Bancassurers – that rubs off on their reputation and the decline on public confidence.
Herein lies the rub, standards should be consistent and customers should expect the regulator to set high expectations of the industry and ensure – through supervision – that all parties are meeting these expectations. When the respective parties – providers, IFAs, tied advisers, Bancassurers etc – comment about each other, they often claim that they are not the problem, it is someone else! My experience is that not all IFAs are good and not all Bancassurers are bad. The regulator applied a ‘light touch’ and was criticised for doing so, now the regulator is saying that they will be more prescriptive, look at a wider scope and will be more interrogative (potentially combative). The industry is unhappy… It sounds like the regulator is ‘damned if they do and damned if they don’t’.
Depending on the risk of activities and the application of ethics by companies and individuals (not just a statement of what they are by the regulator), we should be able to adjust the regulatory burden. However, with the track record that we have seen over many years, we are not currently in a strong position to argue against the need for greater regulatory control in some, if not all aspects of Financial Services. Sadly, it is the actions of certain parties that spoil it for everyone. Often, it is the lack of a ‘moral compass’ and/or a Gordon Geko belief that ‘greed is good’ that undermines the standards that many operate as part of ‘business as usual’. The ‘police’ – the regulator – can only do so much. The ‘society’ of Financial Services (all parties) need to take greater responsibility for how it behaves collectively, but to do so in a constructive way. Blame and counter-blame has not worked well so far. ‘Perception is truth’ and the truth is that the industry is not perceived as well as it should be. We all have our part to play – let’s do so fairly and positively.
