Reading the 52-page consultation document on the creation of the Financial Conduct Authority makes you wonder how the Financial Services Authority lasted as long as it did. But it also leaves you wondering whether the new consumer protector will deliver much of what it promises.
I say this because when the FSA launched in 2000 it also promised to be our financial policeman and flagged four statutes it was to uphold, number three being “securing the appropriate degree of protection for consumers”.
It is a statute the FSA has failed to adhere to over its brief history. The FCA document concedes as much by admitting, “in retrospect, regulatory action was slow”.
Go back over its lifetime and there is little doubt the FSA has consistently been slow to grasp a problem.
It refused to acknowledge there was a mortgage endowment problem and rejected calls for a full-scale review. It was several months before it heeded warnings in the press that precipice bonds were being sold by the bucket-load to the vulnerable by bank advisers. Split-capital investment trusts were off its radar for some time after the collapse of the sector and you can also throw in payment protection insurance.
But we have to give the FCA the benefit of the doubt. It will start with a clean sheet and it should be able to learn from the FSA’s mistakes.
For starters, it should take the financial press seriously – or at least believe that we might be on to something when we raise an issue.
Most of the big consumer misselling scandals have emerged via the press, rather than some beady-eyed FSA investigator, yet the regulator has always appeared to be in denial. Why else did the pensions, endowment and PPI scandals fester for several years before any regulatory action was taken?
Again, the FCA document notes that “regulators were reluctant to acknowledge the scale of the problem and acted only after public concerns had been raised”.
My fear is that the FCA will employ the same type of person who works at the FSA – and that does not give me much confidence. The FSA has frequently made promises that it failed to live up to and has subsequently continued to leave consumers vulnerable to being missold.
Only a few years ago, the regulator launched an initiative aimed at companies to “treat customers fairly”. That the FSA felt it needed to remind our banks, insurers and advisers they should have our interests at heart is sad enough but the initiative failed. In late 2009, FSA chief executive Hector Sants was forced to admit that TCF had “not delivered the outcomes that consumers deserve”.
At the same time, Mr Sants, who received a handsome £800,000 pay package last year, also said “old-style” consumer protection regulation is, in his view, largely reactive, not proactive, but that will change.
Yet there has been little change and that the FSA is only now looking into the marketing literature of complex investments such as structured products bares testimony to this. It should have taken this action in the aftermath of the precipice bond scandal almost a decade ago.
Consumers do not want sober-suited individuals sitting in high-rise offices paying lip service to protecting their interests. They do not want to hear of consultations but want results. The FCA will have no excuses if it fails to revitalise our trust in the financial services sector – after all, the FSA has provided the perfect blueprint on how not to do it.
Paul Farrow is personal finance editor of the Telegraph Media Group