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FCA must learn from FSA mistakes

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


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There are 6 comments at the moment, we would love to hear your opinion too.

  1. Julian Stevens 14th July 2011 at 9:57 am

    The reason the FSA has lasted as long as it has is lack of accountability on every parameter you care to name. Regrettably, the FCA looks set to be no different.

    It’ll be the same people (and more) in the same hugely expensive offices (why?) doing the same jobs (oblivious to calls from others as to how they might do those jobs better), only this time being more aggressively intrusive (Be afraid, be very afraid), with Adair Turner continuing to demand (and get) ever more staff, more resources, more power and more money. The big salaries and questionable bonuses will continue.

    The FCA will continue to set its own agenda with no more than token consultations (the feedback on which is never published for all to see and to debate), skewed Cost:Benefit Analyses (£600m initially for the RDR, now revised to between £1.4 and £1.7Bn, whilst all debate on the possible benefits has been effectively brushed aside) and accountability only to its own board (which, unless the TSC actually manages to bring about the creation of an Independent Regulatory Oversight Committee with real powers to force adherence to the Statutory Code of Practice For Regulators), means no accountability at all).

    And the costs of mopping up the consequences of regulatory failures will continue to be dumped on the industry by way of endless additional FSCS levies. Howls of mass protest will continue to be casually swept aside.

    Yes, the industry needs regulating, but the current system of regulation needs root and branch reform and, as far as the FCA is concerned, it’s hard to see any reform in prospect.

    The heavily armed and armour-plated leviathan at Canary Wharf looks set to remain in place, with little change apart from a new sign over the door and on its headed paper and carpets.

  2. The FSA is dead long live the FCA. When it comes the spot the difference all I can see is that we have lost the “A” and found an “S”. It does seem that we have also lost Gordon and found Big Mac Hoban! Could anyone spot the difference between New Labour and the Conservatives – especially Big Mac Hoban? We need to repeal FSMA 2000 and start again but this time listen to the likes of Advice by Lord Lester of Herne Hill QC and Monica Carss-Frisk who in 1999 were asked to consider the FSMA at bill stage: They said proceedings by the Financial Services Authority (“FSA”) could potentially infringe the European Convention on Human Rights (“ECHR”). Many have since followed in this view. You don’t cure a wound by reinfecting it with the same bacteria!

  3. Incompetent Regulators Award Team 17th July 2011 at 12:17 pm

    As Julian Stevens says, changing the name above the door will be another disaster. Rotten from the core. Corporate cancer from top down. The only change will be for the worse.

    Politicians needs to listen to the people who know and not the spin that comes out of the F-Pack. The solution is to scrap FSMA 2000, sack all the current senior management/directors and start again. This will save a fortune, restore some confidence in the market place and give firms time to recover from the past 10 years of regulatory manipulation/corruption.

    Even no regulations is better than the cancerous system we currently have had to live with. The current regulatory staff are parasites to industry and the consumers.

    We need a fresh start.

  4. Any new regulator with have to have the courage to prosecute senior bank directors and other large companies for serious shortcomings which the FSA never managed to do.

    You only have to look at the miss selling of payment protection insurance, for where are the prosecutions and banning orders for those senior directors in charge of banks and other organisations that sold these policies on the whole scale mis-selling basis.

    I have an online petition at present, asking the simple question. Should bank directors face prosecution for serious mis-selling?

    I’m sorry to say that the only way the financial services will change is if one or two senior directors are prosecuted and made examples of rather than just going after smaller firms.

    Fred Goodwin for example is free to apply and hold a senior bank executive role and, in the words of the FSA was found not to have any lack of integrity. In my opinion, I believe that the FSA or whomever the new regulator is, really needs to examine that serious shortcoming, after all this individual nearly bankrupt the country and not only the Bank.

  5. Green Eyed Monster 17th July 2011 at 3:54 pm

    Paul: Julian speaks for most of us.
    Please reprint his comments in the Telegraph and on its website. . We need the general public to find out whats going on. We don’t have a trade body willing to stand up to government and the regulator,
    so we need the media to disclose the shambles that is the regulatory system.

  6. Oh dear. The evidence for the failure of ALL regulation is transparent in the article. Regulation is flawed in its very definition.

    Firstly, the State can’t do ‘consumer protection’. The Fabianistic functionaries have adopted this to mantra to improve their own franchise. The ‘market’ is its own best policeman. Only latent authoritarians could believe anything else.

    Secondly, central planning always fails. The purpose of the FSMA2000 was to proto-nationalise financial services by regulation. The collapse of the Berlin Wall and the Soviet Empire was practical evidence of Mises proof that socialism, aka central planning, can never work. But, you can take nationalisation out of the manifesto but you cannot take it out of socialists. Hence the FSMA2000 and the FSA, and predictably it failed and its institutional incompetence precipitated the failure of the banking system.

    The banks themselves are a state sanctioned cartel with special privileges. Reform those and the bank cock ups will go away.

    ‘Mis-selling’ are weasel words. Consider, you can have buying and selling. You cannot have ‘selling’ in isolation. Therefore is you have ‘mis-selling’ you must have ‘mis-buying’. Logically then you cancel out the ‘mis’ prefix and you are back to buying and selling. From that you need to look at responsibility and you end up with caveat emptor as the only way to operate a free society.

    There is zero democratic accountability at the FSA, and so there will be at the FCA. Where there is no external accountability you always get corruption.

    That’s enough for now, but you get the picture. The FSA is an institutionally corrupt unaccountable out of control and pointless construct of the most deceitful government I have ever experienced.

    Shut it down.

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