The history of legislation in general, and financial services legislation in particular, is littered with good intentions gone bad.
Good outcomes more than offset by unforeseen consequences, almost like a successful surgical operation ruined by necrotising fasciitis.
The most recent example is the RDR but readers will be relieved to learn that this hoary old topic is not the focus of this particular column.
Philip Johnston, in his excellent book Bad Law, explores numerous examples of well-intentioned legislation that backfires or gets moulded into something very different by interested parties.
My thoughts returned to the subject recently during an animated conversation with a long-standing client who operates a chain of employment agencies.
Some years ago I introduced him to Kensington for a secured loan. It was always his intention to repay the loan early and two weeks ago he sent them a cheque for the balance figure having already established this over the phone.
A few days later he was disturbed to receive a letter from Kensington returning his £40,000 cheque and informing him that to comply with money laundering rules he must prove the origin of the funds before they can accept repayment.
Over the telephone he explained that the funds had been drawn from his company, the same company he owned and operated at the time of application. The cheque was drawn on the same account that was used for the monthly loan repayments.
However, it seemed this explanation was not sufficient for their purposes as they needed proof of how the sum was obtained.
Providing a bank statement showing the transfer of funds was deemed unacceptable and at the time of writing the matter remains unresolved.
Now consider, this lender undertook due diligence when the chap originally applied to them. He lives in the same property and operates the same business as he did at the date of application. He has not changed bank accounts nor has he a criminal record or bad credit history.
Money Laundering Regulations 2007 do not stipulate such actions by institutions. This seems a massively over-zealous interpretation by the compliance and/or legal departments.
Not totally dissimilar, perhaps, to the FSA’s repeated mantra concerning its legal counsel’s belief that it was Parliament’s intention that the 15 year longstop defence should be removed.
Vince Cable famously once boasted that red tape would be cut and unnecessary regulation curtailed thereby reducing the burden of bureaucracy. Truth is it is often not the laws and regulations themselves which cause the problems so much as the interpretation placed on them by empire builders and ladder climbers.
In this instance, whether these antics represent cautious and considered gold-plating, I will leave others to decide.
Alan Lakey is partner at Highclere Financial Services