Let’s have a Rant

by George on 6 December 2012

….About our regulators

For sometime now at networking events and other meetings, I have offered friends, contacts and readers the chance to do a guest blog. One or two have taken advantage of this but not as many as I would have expected. This week, I am happy to let award-winning business and financial journalist Padraig Floyd loose on my pages. His covering note says it is a bit of a rant – which is why it’s worth reading.


Over the past decade and a half I have encountered a good deal of regulation in the course of my work. The trouble with a good deal in this context is that the deal is generally a compromise or committee-generated nonsense with little chance of working in the real world and is good for none of the parties it was ever intended to serve or govern.

The Retail Distribution Review was in and of itself a fine ambition – to remove the excesses of a market out of control in order to protect an ignorant and gullible consumer. What followed was a gestation so lengthy and tortuous as to border on the farcical. Not because the idea was bad, but because the regulatory body overseeing it was hopelessly inept.

The Financial Services Authority, designed to oversee and regulate a burgeoning market, now in its mid-teens, has had a hard time growing
up. It was an agency born of a new marriage, the offspring from a whirlwind romance between the electorate and the Labour government. Under the Tories, profit was the priority, alas, at the expense of the consumer. Labour wanted to show it knew how to regulate but in a new, light touch manner that would silence its critics in business.

The new agency guarded its responsibilities jealously, fuelled by a chip on its shoulder from being left out in the cold – anyone who hasn’t worked on the Thames should thank their lucky stars – while its elder cousins basked in the warmth of patronage in the bosom of Westminster.

In its anger and isolation, its ambitions grew and it took on more responsibility, without realising it was growing without a businessplan – a rebel without a course if you will – that would result in the undermining of its regulatory oversight. In itself an oversight of monumental

It was proud of what it achieved, but pride isn’t one of the seven deadly sins for nothing and it is always most apparent before a fall. And how the high and mighty fell.

Now we should remember that many of the things the FSA dealt with in the first half of its life were born of a previous regulatory regime. It would be unfair to blame the agency for situations created before its birth. Especially when there is such a rich seam of cock-ups it is totally and utterly responsible for.

As it encountered crisis after crisis, it bought into the belief it was dealing with things and doing a good job. And in many ways, it was doing a great job – great if you were a bank, insurance company or asset manager. Not so fantastic if you were an adviser.

It wasn’t only politicians, the police – and even, apparently journalists – who fell under the spell of big business. The FSA fell for it hook, line and sinker. So proud of the ‘special relationship’ it enjoyed with its financial institution chums, it felt it unnecessary to look quite so hard at their business dealings, whereas smaller, advisory groups – particularly if you were small and independent – were put under the microscope.

I have long questioned the sanity of such a position. Even if we were to hypothesise all financial advisers really do wear spurs and ten gallon hats and rip off their punters, just what proportion of the financial services market is concentrated in their hands?

Even after a series of meltdowns, with zeros, split-caps, with-profits, pensions mis-selling, endowment mis-selling, PPI, etc, it wasn’t the big companies that got their plums squeezed. Even LIBOR might have been overlooked had it not been for the ignominy of overseeing the single greatest market catastrophe since the Great Depression.

And yet, this agency of error, this busted flush, has the temerity to slap huge fines on errant individuals and small firms, to bleed the advisory community white for the sins of the few, while letting others get away with blue murder.

I refer, if you hadn’t already guessed, to the treatment of Capita over the Arch Cru debacle. Now, I’ll declare my hand. I would have happily seen many of the banks we salvaged after Lehmans cease to exist and their stinking carcasses displayed in the City as a warning to business and regulators alike. But I don’t make the rules, just write about them. We chose a different path that brought about the FSA’s imminent disestablishment. But how, given all the FSA has been through in recent years, could it possibly be so spineless over the Capita affair?

How, when it fined UBS £30m for unauthorised transactions, could it fine Capita Financial Managers only £4m with £32m from its parent going towards compensating its hapless investors? And then decide to drop the £4m fine altogether?

Just about everything CFM did over Arch was “inadequate” according to the FSA’s public censure – a pathetic bigging up of a weak letter of disappointment – of the firm. The sums reclaimed from the Capita Group amount to less than a third of what is going to be taken from the industry, and to add insult to injury, the Financial Services Compensation Scheme (FSCS) announced it was going to take another £28m in a levy imposed upon advisers.

The FSA gives not a jot if its actions force a small company into administration, so why should that not be the same for the big boys?

A fair market is one with a level-playing field and in 15 years, the FSA has singularly failed to make any great – or even little – strides in that direction.

What is particularly galling is the FSA is about to come of age and morph into a new kind of regulator, yet on the eve of this momentous change, it continues to take decisions that can only make us doubt its judgement.

I wouldn’t let a 16 year old make any important decisions about my future. I fear we can only look forward to more errors of judgement
– earnest and callow though they be – and wait to see if any lessons have been learned.

I once wrote the Financial Services Authority (FSA) had some fine people working for it but couldn’t find its arse with both hands. I think it might be a good idea to quiz the new agency on human biology to see if it can distinguish between the posterior and a joint between upper and lower arms.


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