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Kevin Carr: 3 things the FCA should do that the FSA (probably) didn’t

So the FSA says it was overburdened. Yep, perhaps they were too busy keeping the garden tidy while the house burned down.

Lord Adair Turner has said one of the major flaws in the regulatory structure which failed to avert the financial crisis in the UK was the FSA was “asked to do too much”.           

“A lot of apparently very clever people got it very wrong, and the ordinary citizen suffered. We have to do better in future,” he added.

This got me thinking. According to reports setting up the new regulatory authorities could cost up to £150m. 

So, where might one start?

1. One of the first tasks could be to set up a department to monitor, fully understand and report back on what is being written about in the personal finance and business press. A team of ex-editors and journalists, quite possibly an ex-IFA or two, and maybe even a few experienced and consumer minded PR people would make an excellent team. After all, many of the scandals of the last twenty years were written about many years, if not decades before they really began to hurt people.

What do journalists know? Well, as with all walks of life it depends which ones you ask. But generally speaking they can spot a rip-off from a country mile away.

2. Secondly, we could build a similar team to focus on consumer groups. A department to work alongside and understand the ever changing concerns held by FOS, Which?, Citizens Advice and so on.

Both departments would provide early warnings about potential issues and how to resolve them before they become too big.  Perhaps, then, we might be able to prevent the next mis-selling scandal rather than quietly letting it happen before championing the compensation culture after the event.

3. For step three we might develop a policy that sees people who understand a market continue to work on that market, not leave or switch around.

It strikes many people that a key problem with financial services regulation over the years is that people keep moving around. Once they begin to understand a market they tend to move on and someone else takes over.  Do we need a strategy where the people making the rules stay in the same department and see it through?

What we might not want are people who join the FSA primarily to get ‘FSA’ on their CV with a view to departing a few years later. I’m told that’s exactly why many people have joined over the years.

Kevin Carr is founder of Kevin Carr Consulting


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There are 8 comments at the moment, we would love to hear your opinion too.

  1. These seem like sensible suggestions to me which probably means that they will not happen. I would add the following:

    Regulators should obtain professional qualifications. I had never really thought about this issue until reading the financial press today. It is just hypocritical for the FSA to set down minimum professional qualifications for those they are regulating and have no minimum qualifiactions for themselevs.
    They should be seconded to the industry for several months as part of their professional development, so that they gain experience at the sharp end and can better understand the industry they are regulating
    There should be a consultation body set up in conjunction with representatives from the Finance Industry which meets on a regular basis. Amongst other things new regulation proposals can be discussed and implemented in a practical way. Regulation by consensus rather than by confrontation. I appreciate that there will never be a full consensus but at least there will be a better chance of understanding on both sides.

  2. Couldn’t agree more – we need a better balance of “stick” and “carrot” Too much stick (regulation), by itself, will not result in the necessary cultural changes. More visibility and accountability from the very top of organisations would also be welcome – you can’t delegate the restoration of customer trust to the Risk and Compliance department.

  3. I agree with the comments above, I myself notified the FSA on how PPI was being ‘flogged’ with personal loans way back in 2005 but didn’t even receive the courtesy of an acknowledgement.

    They could also include regulating the industry ‘the right way up’ i.e. regulate the institutions and the products they provide and this will filter down to those who subsequently advise on those products. The current system regulates the adviser who can have peddled toward them any old crap the product provider wishes to flog. Stop this and you’ll prevent many a miselling problem.

    Make the decision makers in the FCA more accountable. Many a ‘fine’ and ‘compensation’ is being being paid for by advisers when the ultimate responsibility for the current market volatility and low returns can be laid at the feet of those who headed the FSA over the last 10 years (aswell as Gordon Brown). All walked away not only scott-free but also with their pockets lined with silver!!!!!

  4. It does appear that too many senior people in the past have had to learn about the sector once having been appointed. This is evidenced by the countless and interminably long consultations and reports.

    The apparent desire to never have to admit it might be wrong also seems to be a systemic or institutional failing which I think should be addressed.

  5. I meant to add to Stephen’s comments above; whilst I understand the sentiment the reference to ‘carrots and sticks’ suggests we are all donkeys.

    I realise how it may appear arrogant of me but I genuinely believe that a different approach is needed that does not involve a beating for getting it wrong or a meagre reward for doing what should be done anyway.

    There’s a very good book on the subject if anyone’s interested [not mine I hasten to add]

  6. The FSA already has a consumer group of which my colleagues have sat on, it also monitors the financial press religiously, so it would only be no.3 that required implimentation, which I would agree with.

  7. Thanks for the comments all. I guess having the departments is one thing, being effective is perhaps another. If such departments exist and work as outlined have they been successful? One might suggest not given PPI, endowments, sub-prime lending and more, which were all written about many years ahead of the serious problems. I’ve sat on fsa/fos/all-party working groups and the links were somewhat tenuous in the past, and while I have no doubt FSA measure the press closely, is it for the right reasons and what changes are made as a result? Hopefully the future will see much better outcomes.

  8. As the regulator of our industry which provides 40% of the UK’s GDP, the FSA had a responsibility to oversee a rapidly growing and changing industry without the expertise or the level of understanding needed to work effectively with the organisations they were authorising. Too much focus was put upon how they would regulate rather than regulating effectively recognising riskier products and business models. Misselling is not new, think back to the pension and endowment troubles. What lessons were learnt by the regulator in their approach? Only now are we seeing a shift from pressured selling to customer service. Libor was left to be manipulated unoticed by the regulator, did the alarm bells not ring loud or did they and it was by then too late. I agree that working for the FSA is a career strategy on a CV perhaps this could be overcome by specific qualifications to the FSA which would encourage long term commitment making employees more accountable. Whilst the FSA are not responsible for those actions within the industry, they were responsible for it’s regulation.

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