Share
Nic Cicutti
Sants reveals FSA flaws
It isn’t often that BBC’s Radio 4 Today programme opens its news bulletin with a story about a speech to be given later that day by FSA chief executive Hector Sants.
Last Friday, the Beeb trailed a few details of what Sants was likely to be telling an invited audience at a business school in Oxford that evening - tougher regulation would be applied, to end the “culture” of misselling that has bedevilled financial services.
So why, when I eventually got hold of the embargoed speech that afternoon, did I feel so underwhelmed by it? Mainly because what it finally signalled, as Sants prepares to clear his desk later this year, is the overall failure of the FSA to make a dent in the way the industry has been overseen ever since the watchdog came into being almost 11 years ago.
Sants told his audience on Friday night: “Fines and past business reviews are proven not be a sufficient deterrent. Essentially, our process has been too late in the product lifecycle to ensure that we identify potential issues early enough to prevent consumer detriment.”
Back in January 1999, along with the then FSA chairman Howard Davies, I was on the panel at the regulator’s first “town hall meeting” in Bristol, attended by over 300 people. The aim, according to the handouts, was “to meet consumers to find out about their financial concerns
and what they expect from the FSA”.
Either the concept of town hall meetings was a failure or what the public told the FSA was unpalatable, as they were scrapped after just three events.
Yet after 11 years, we find ourselves being told that much of the efforts of the past decade, which have consumed the efforts of thousands of FSA staff and tens of thousands of industry practitioners, not to mention hundreds of millions of pounds, have fundamentally failed to achieve what they set out to do.
What is staggering is that, in effect, Sants is also telling us the theor etical model that has guided the FSA’s work in all this time was also deeply flawed.
“Light-touch regulation” for example - the assumption that you can afford to spend little time on firms that are assumed to be behaving acceptably while concentrating your firepower on the more likely offenders. Yet all light-touch regulation proved was that it does not matter what type of firm you are, given the opportunity your salespeople are just as likely to offend as the supposed rip-off merchants . Then there was
“treating customers fairly”. I was a big fan of this one but it could only work on the assumption that the FSA was prepared to intervene early and often, at least initially, to ensure that TCF ground rules were being observed.
In the end, TCF failed because the regulator failed to generate and reinforce the shift in attitudes needed to make such a nebulous concept work.
What are we left with? The FSA will now intervene a lot earlier and focus on products “at the design stage” and intervene to change incentives offered to the sellers of these products if an industrywide problem emerges. I am shocked - call me naive but I had assumed the FSA did that already.
After all, isn’t this what the FSA and the Competition Commission have been labouring - so far unsuccessfully - to achieve with regard to PPI sales? To discover that the regulator has only now woken up to the fact that some products are structured to ensure maximum returns for those who sell them and minimum payouts to those who buy them is frightening.
As for intervening early, the debacles at Equitable Life and Independent Insurance a decade ago should have taught the FSA then that you need to intervene fast to stop a firm falling to bits.
In the case of Equitable in particular, what is striking about the various reports published into its collapse is the fact that officials at the Bank of England and the FSA were locked in desperate talks with the company’s senior executive for many months. Somehow, it appears to have taken more than a decade for those lessons to be learned.
Similarly with so-called mystery shopping exercises, to tout this as a new way of enforcing proper and not misleading selling is astonishing. Mystery shopping has been a stock-in-trade for consumer organisations for decades.
I had assumed the FSA already used mystery shopping regularly among its many monitoring strategies. To be told this wasn’t the case is breath-taking.
For the past 10 years, the FSA appears to have operated a two-dimensional regulatory approach to a vibrant, energetic but permanently dysfunctional financial services market. We are now being told fresh change is afoot. I don’t believe a word of it.
Nic Cicutti can be contacted at nic@inspiredmoney.co.uk
If you enjoyed this article, sign up here to receive daily email updates from Money Marketing and Follow @_moneymarketing
View results 10 per page | 20 per page
Most popular
Most commented
Most emailed
-
Private equity firm takes joint control of wrap provider FNZ
-
New draft HMRC guidance suggests advice process will be VAT-exempt
-
Tony Wickenden: Introducing Seis and changes to VCTs and EIS
-
Scot Wids to re-enter IFA annuity market and exit offshore bonds
-
Most people have zero risk appetite, FSA finds
Readers' comments (13)
Evan Owen | 18 Mar 2010 2:25 pm
Hi Nic
You really are writing some good pieces of late, well done and I really do mean that most sincerely folks!
I would like to point out that the FSA has been around since 1985 when it was called the Securities and Investments Board (SIB), remember that? Most of the SIB people who haven't retired on big pensions are still there, you might be forgiven for wondering what sort of people are happy to turn up each day (not that they do) and take all this flak, some of us would find it very hard to deal with personal failure being exposed so publicly however much we were being paid but onwards they trundle, hiding behind the potted plants waiting for retirement or a bigger job at the next variation on the theme, what is it to be called? The Consumer Protection Agency? The CPA... does that instill you with confidence after SIB/FSA, LAUTRO (don't get me going on that one), FIMBRA, PIA, SFA, IMRO (yes, Keydata) and here we sit broken hearted, depressed, unable to contain the anger and the frustration at the scale of incompetence.
So, we are not frustrated by just 10 years of more cost and increasing numbers of regulators while the catasprohic failures increase in number but it is in fact 25 years of it! How many generations have lost out during all those years and how many future generations, including the unborn, will be paying the price of the failure of people who pay no price for being wrong?
I am losing the will to type....
Unsuitable or offensive? Report this comment
Anonymous | 18 Mar 2010 2:27 pm
None of this comes as a surprise.
We've known for years, the FSA is not fit for purpose.
No doubt it (FSA) will continue to bleed us and still not perform.
Oh well, only a little over 2 years or so until I'm out of here!
Unsuitable or offensive? Report this comment
Alan Lakey | 18 Mar 2010 3:20 pm
Yes, regulation has failed. It has failed he consumer and it has failed the regulated firms who pay for it in various guises.
Anybody exhibiting even a primitive attentiveness will be aware of the problems within the industry. PPI is the latest in a remarkable series of regulatory failures. Advisers have known for decades that single premium plans represented atrocious value and no responsible adviser will have fallen for their attractions. That the FSA did not know or, worse, did not feel it appropriate to investigate, speaks volumes.
Having a regulator that fails to protect consumers, and then makes growling noises after the event, does nothing to further its statutory objectives of market confidence, public awareness and consumer protection.
The Tories aren’t listening but we do not need a new focused regulator the incumbents at Canary Wharf were that very thing ten years back. We need common-sense understanding of the need to market products which solve problems. An understanding that consumers come in different shapes and sizes and the advice process must necessarily be as varied.
Commission is not a bad thing - like a bullet it is only as bad and the guy pointing the gun. Sort out the villainous gunslingers and leave the rest alone.
When analysed it can be seen that regulation is not fit for purpose – unless it is to provide work for bureaucrats and their friends.
Unsuitable or offensive? Report this comment
Michael Fallas | 18 Mar 2010 3:23 pm
We have to pay for our mistakes so when will the FSA pay for theirs then?
Oh sorry I forgot we pay for theirs as well !!
Unsuitable or offensive? Report this comment
Blair Cann | 18 Mar 2010 4:25 pm
All of which is fine as far as it goes; but the magazine Private Eye, current issue, comments on Sants's interview with the Sunday Telegraph recently in which our Hector announced apparently he was"shocked" at the level of insider dealing taking place-this three years after he was appointed one assumes to scotch such things. Private Eye suggests the FSA itself should exit through the same door as Mr Sants.
I cannot see how an assertion that the FSA has failed and failed badly in its aims could be disputed yet this is nothing to celebrate over. It could be read that certain practices in the City are so deeply immersed in the culture and so vigorously defended by the perpetrators that they are almost impossible to drive out. In which event where do we go from here?
Unsuitable or offensive? Report this comment
Robert Donaldson | 18 Mar 2010 4:40 pm
I would type a long diatribe but my fingers have lost the will to do so. I will only say that it is always easy to state the obvious but what is the solution, go back to the way the industry was, scrap the FSA altogether and start with a new rulebook.
Whilst I cannot say that I think the FSA are great, no one in our industry ever comes up with answers just criticism.
It is boring!!!!!!!!
Unsuitable or offensive? Report this comment
Blair Cann | 18 Mar 2010 5:09 pm
Well perhaps if we were paid a base salary of £478,000 plus significant performance bonus we might be persuaded to come up with an idea or two
Unsuitable or offensive? Report this comment
Charles Bunbury | 18 Mar 2010 11:49 pm
Hi Evan
Excellent, all we will get is change of name, until FSA.GOV.UK or CPA.GOV.UK are no longer above the law. On the 30 March 1999 Anthony Hilton City editor of Evening wrote. “I think it only fair and reasonable that Imro should have a right of reply to criticisms levelled at the organisation in these pages last week. It is disappointing that in taking this opportunity, Imro fails to address the substantive point at issue.
The purpose of the report was not to show that it operated its enforcement procedure through a mixture of bullying and spiralling costs. Rather it was to make a case against the continuation of STATUTORY IMMUNITY for the regulator, and particularly for the Financial Services Authority. My point was that if there are circumstances in which the regulator oversteps the mark, then the wronged individual needs to have the opportunity of redress before the courts."
Until statutory immunity is removed from FSA.GOV.UK or the CPA.GOV.UK assuming there is change of government nothing will change.
Unsuitable or offensive? Report this comment
Patrick Schan | 19 Mar 2010 8:41 am
As usual Alan Lakey is right on the mark. You will always get those that will abuse any payment system. The crooks will find a way around anything. Just punish them heavily to deter the others. It's funny though, how when a small firm is caught, having done something wrong, they can be suspended but when it is one of the big boys they just get a fine that they can easily live with.
Can you imagine suspending one the life assurers or banks?
Unsuitable or offensive? Report this comment
Craig Mcmcgowan | 19 Mar 2010 3:47 pm
FSA flaws revealed.......i would imagine if all their flaws were given in a speech it would still be going on now and would go into the Guinness book of records for the longest most buffoon filled speech in the history of the world.
I bet there would be a whole afternoon’s discussion on the arrogance of the FSA and them ignoring about all the issues on the money made more complicated website they run.
A whole month on SCARPS and how their guide didn’t even mention counterparty risk even though the rest of the industry did!
Maybe a whole years worth of comments for the overpaid buffoon who is shortly to leave…….bye bye Hector, we wont miss you
Unsuitable or offensive? Report this comment