Converting the FSA to the FCA should amount to more than changing a letter and shuffling who sits where. MPs agree and so does Lord Turner. But they do not agree on what the objectives of the FCA should be. And if they cannot be clear about that, there is little hope we will end up with better regulation. At the moment, we look likely to end up with a confused and conflicted regulator.
Lord Turner was right in his evidence to MPs to say that the draft objective of the FCA, protecting and enhancing confidence in the UK financial system, is wrong.
That should be one of the outcomes of good regulation, not its purpose. Adopting it as an aim will validate the use of propaganda and black arts by the regulator and could even justify the position that causing or precipitating a lack of confidence – something journalists are often accused of doing – should be subject to discipline and enforcement.
Anyway, why should the regulator promote confidence in a system containing lots of rotten stuff? Its job should be to get out there with the mop and disinfectant. A bit more of the lavatory cleaner, please, and less grandiosity.
Rightly, Lord Turner said the objectives should be about efficiency, fairness and consumer protection. Notably, he did not include competition in this list and he was right about that too.
The FSA apparatchiks who failed to prevent PPI misselling are now claiming it was the “regulatory gap” between competition law and FSA rules that prevented them from acting. This is self-serving piffle. It was obvious the FSA did not have a clue about the scale or nature of the misselling until it was far advanced and the OFT had stepped in. The OFT took too long to investigate but this is a fault of competition law, which urgently needs reform to speed up both investigations and
Of course, the guys at the FCA want to add competition in financial services to their responsibilities. A bigger job means more power, more people, bigger salaries. But this is a terrible idea.
Competition rules should be applied consistently across all sectors of the economy and competition law should ensure that this is possible. If competition law is written for the financial sector by the FCA – which is effectively what it would do by making the kind of rules the FSMA permits – then we would go further down the route of having one law for financial services and another law for everything else.
Worse still, because of the FSA/FCA’s immunity to oversight by the courts, it would remove the ultimate safeguard of freedoms and rights that constrains regulators in other fields – the right to take a case to the High Court. You may think that the way the banks took the OFT to court over bank charges was a cynical manoeuvre to protect their profits but the way to prevent delaying tactics of that kind is to reform competition law, not to give more ironmongery to a wimpish and weak-kneed regulator which has never yet banned or disciplined any senior executive at any big company responsible for any misselling scandal.
As I have said before, if someone has never shown the courage to use a revolver, why would you give them a bazooka?
Chris Gilchrist is the joint author of The Process of Financial Planning and editor of The IRS Report