The harmonisation of regulators, together with independence for the Bank of England, was Gordon Brown’s first master stroke as Chancellor. He effectively depoliticised inflationary control measures and codified the prosperous financial services industry in a single sweep. So far so good but why did it go wrong?
To find the answer, you need go no further than the local library or the internet if you prefer your study material microwaved. It is not a new phenomenon to see capitalism one step ahead of ethics. In the 18th Century, when John Law was effectively inventing securitised credit, he did so operating beyond the perimeter of the law. In fact, his actions led to new laws being invented.
Similar things happened after many of the great investment booms and crashes. The common factor was that rampant capitalism was just a bit smarter than the regulator. Like the fat old gamekeeper chasing the naughty schoolchildren with their coats stuffed with rabbits, the regulator is often left to rue its inability to change with the times.
The hangover from Northern Rock is obvious and has been analysed to death in many places, yet the truth of the aftermath is that as the FSA sees transparency and openness as the answer, the banking world has conjured an illusion of such complexity and obfuscation that even the most sophisticated client is flummoxed.
There is a belief that certain grubby paws did very well out of the whole episode and in fact the banking system has found a new vampiric strategy to bleed wealth from its victims.
It is easy to see where that comes from as banking CEOs resign with big payoffs.
I don’t think trust for the banks has been dented, it was never there anyway, but what is interesting is that they hardly trust one another any more. The inter-bank lending rate reflects that. Until they start believing each other, why should we believe them?
Inevitably, it is the super-regulator, the behemoth that is the FSA, that must bear accountability for all this. The files have been scrutinised and their methods subject to rigorous back-testing and have been inevitably found wanting. They have done the only thing they could and put their hands up.
I only hope that the FSA does not now become obsessed with sophisticated financial instruments exchanged by uber-traders across the global economy and take its eye off the far more important ball.
UK individuals are not saving enough and our consumer-led economic flourish is set to retract, with inevitable consequences. Wheat has risen by 140 per cent and other commodities are close behind – no wonder inflation is a fear again. The stockmarket stands at below par value again and vicious movements are common-place.
I would expect that when the banks appear to lose their heads, most clients will be sticking with who they know – their adviser. It is a marvellous fact that the client to IFA relationship is generally a strong one built on years of just “being there” and balancing the needs of the individual with the vagaries of the wider economy and helping them steer a sensible path ahead.
In short, the twin values of sound financial planning and professional support and guidance have never been more urgently needed.
The FSA might reflect on the Northern Rock incident when they redraft the definition of treating customers fairly and hopefully ensure that they avoid again falling for the triumph of technique over purpose.
Steve Buttercase is senior adviser at M2 Financial