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Martin Bamford: Regulation costs are out of control


Even as an ardent supporter of the RDR, the latest cost revelations from the FSA via Money Marketing are beyond outrageous.

For a relatively simple set of industry improvements to cost an eye-watering £2.6bn over a period of five years is enough to make George Osborne weep. We are supposed to be living in an age of austerity. Clearly nobody told the regulator.

Some of the one-off and ongoing costs attributed to the RDR as reported by Money Marketing last week are baffling.

I suspect such high costs were the result of firms, particularly large product providers, being dragged kicking and screaming into the new world. It costs the equivalent of the GDP of Montenegro to bring your legacy systems up to scratch if you’ve been living in the past until the last possible moment.

The whole regulatory system of retail financial services in the UK has become massively over-engineered. We’ve arrived at a place where we are regulated from too many directions.

No man can serve two masters, yet as regulated firms and individuals we are forced to now serve many masters.

In addition to the FSA, we are at the mercy of the FOS and its often bizarre decisions, the FSCS and its massive levies, and most recently our professional bodies with responsibility for Statements of Professional Standing.

Rather than a simple and effective system of regulation with clear rules, we have a convoluted hotchpotch where more time can be spent documenting, reporting and complying than actually delivering an excellent service to clients. It’s a rather sad state of affairs.

I have suggested before that there must be a better way. A self-regulatory body could (and should) have been formed at the time when our professional bodies accepted responsibility for approving and monitoring the professional standards of individual advisers.

Instead, we have been left with a situation where individuals are effectively regulated by a combination of the FSA and their chosen professional body.

In all of this, the consumer pays. That £2.6bn of RDR costs is coming directly (well, indirectly actually) out of the pockets of consumers. Whilst I have no doubt that the RDR will eventually result in better advice outcomes for consumers, it will come at a significantly higher cost than was originally predicted.

When our next FSCS interim levy lands on the doormat this month, our clients pay for that as well. With remuneration transparency now de rigueur in retail financial services, the cost of the failure of others will be stark for consumers.

Our peers do silly things like recommend investment in Caribbean property developments and all financial services customers pay a heavy price.

We might not be able to form a single industry voice on most issues; I’m betting it won’t be long before financial services consumers manage to do so, lobbying the FSA and Parliament to cut the complexity, cost and general craziness of financial services regulation.

That might be wishful thinking on my part. Perhaps regulated firms are as much to blame for the current mess as the regulators. Nothing as simple as proper qualification standards and transparent remuneration should have cost anywhere close to £2.6bn. We should all have been there years before the FSA originally suggested it.

Martin Bamford is managing director of Informed Choice


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There are 17 comments at the moment, we would love to hear your opinion too.

  1. The basic premise of regulation has been lost in the empire-building and attention to mind-numbingly useless minutiae that such an expansion permits.

    Regulation is meant to protect consumers from being shafted by unscrupulous advisers. What it now does is set a template, a design of tramline adherences that limits innovation, stifles entrepreneurship and makes the damn thing so expensive that the adviser workforce has been cut by 90% in 20 years.


  2. Which is a long way round the houses of saying that what’s desperately needed is an Independent Regulatory Oversight Committee working hand in hand with the NAO, whose central objective should be to force the FCA to observe all aspects of the Statutory Code of Practice For Regulators ~ which, being Statute, is supposed to be Primary Legislation. How can the regulator be allowed to ignore Primary Legislation? It’s not just that the regulator’s costs are out of control, its the regulator itself that’s out of control.

    Doubtless the FCA will point out that, like the FSA before it, it’s subject to periodic oversight from the NAO. But such a claim is quite disingenuous, because all the NAO does is cast an eye over the regulator’s accounts to check their format and that they balance. What it doesn’t do is actually query, much less challenge, any of the content, so the procedure is just a token sham of holding the regulator in any way to account in terms of justifying its budget of £578.4m. For example:-

    1. To whom is the regulator required to justify each year’s increase (always well above inflation) to its already colossal budget?

    2. Why does the FSA/FCA need to employ 4,000 people?

    3. Why do they all need to be based in one of the most expensive office blocks in the country?

    4. Why do the half yearly GABRIEL Returns need to be so convoluted, intrusive, time consuming and downright difficult to complete? Are they not an unreasonable and manifestly UN-cost-effective imposition on regulated entities? Why can’t they be dramatically streamlined and simplified? What does the regulator actually do with most of the data submitted? Could it not meet exactly the same objectives with vastly less data?

    5. What is the justification for the regulator’s colossal and wantonly extravagant yearly spend on, for example, stationery (a million quid in 2010)?

    6. What is the justification for the regulator’s yearly bonus scheme?

    7. Why is there no effective disciplinary procedure for members of its staff who abuse their powers or who fail to discharge their responsibilities fairly, competently and effectively?

    8. What is the justification for denying intermediaries the protection of a common law longstop against stale complaints?

    9. Why does the regulator refuse to publish for all to see and to debate in open forum all responses to its so-called consultations?

    10. Why is the regulator allowed merely to brush aside all and any challenges to its proposals instead of those raising such challenges being able to refer them to an independent arbitrating body?

    11. Why is the regulator allowed free rein to set and pursue its own agendas without being subject to the imprimatur of any other body?

    12. Why is the regulator free to ratchet up its

    The list of issues on which the regulator should be effectively challenged by an independent body goes on and on. It’s all about accountability ~ or rather the present total lack of any.

    And what’s APFA doing about it? Just picking at bits of the problem in isolation, and we never get to know what, if any, responses it receives from the regulator. If APFA’s asking questions and raising challenges but just being given the brush-off by a regulator that knows it can do so with impunity, then clearly a major change of strategy is required. Otherwise, it’s just a talking shop that’s achieving nothing.

  3. Much of what you say Martin is very pertinent and Julian’s remarks on Gabriel are also relevant. Although I don’t really have much trouble with this it has been designed to allow the appearance of regulation, while trying to make it as automated as possible. How much easier was the old system, that required a copy of the bank statement, a copy of the accounts and even a copy of the last tax return and a copy of the POII certificate is really all that is needed – but that requires a sentient being and there seems to be a shortage of these.

    As to Martin’s points, I think he may agree that to a large extent we have ourselves to blame. How many attempts have there been to enforce transparency? Commission disclosure, KFDs and goodness knows what else – all circumvented by an uncooperative industry. Transparency from providers (and I know) from many IFAs has hitherto been a poorly understood concept. The commission payable appearing on page 28 of a 29 page document. Sure the Regulator carries some blame in imposing so much paperwork, but then this comes from people who come from the ‘Big Four’ and are theorists rather than pragmatists.

    Ever since I entered financial services I have always marvelled at the fact that practitioners seem automatically to presume that their cost of doing business would be as near to zero as possible. I well remember the howls of anguish when the first £10k Cap Ad was introduced and Gary Heath having apoplexy. Yes regulatory costs are high. Let’s hope they can be controlled, but for most small IFAs the cost of doing business is still pretty cheap (if they are sensible). Capital equipment falls to a computer, a desk and perhaps a smartphone. Try setting up a business in retail or manufacturing with under £200k as an absolute minimum. So I guess we need a sense of proportion. Sure it isn’t all honey and roses, but what business is? Do you make a living? Do you enjoy what you do? Let’s try and look on the bright side – as Monty said. Unfortunately too many of our number have had no experience in other sectors to form a comparison.

  4. It’s a bit late for Martin to start bemoaning all the negatives of RDR. Enough people were warning it would be a disaster a long time ago but Martin was one of those that didn’t take any notice, so this is all a bit rich really isn’t it? Although he seems to be trying to blame it all on firms changing their systems late. Martin, the RDR was always bound to cost a lot more than it was (supposedly) intended to save, as well as good IFA’s jobs who have had enough of the stupidity. It is also going to be easier to the crooks to cheat the public from now on.

  5. One thing Martin has to accept responsibility for is that as a supporter of the RDR he failed to identify the issue of cost. Our submission to the regulator expressed deep concern about the costs, both direct and indirect. One off and on-going. They were cooked to achieve a certain goal probably like the costs of the HST rail link were fiddled to justify its construction.
    The biggest farce of the whole thing is the complexity of regulation we currently have. The FSA has to navigate though it but ultimately the FSA do not recognise advice – only product and product categories. Different rules for GI, pensions, investments – it is a shambles.
    There is a rule of 80% which is basically that you spend 80% of your time working with 20% of your clients. The FSA are probably doing the same thing looking at the 20% that cause the trouble and greatest consumer detriment. That we are all sharing all the costs for those 20% cannot be fair or reasonable.
    I have a bee in my bonnet at present and it is an amendment to Human Rights laws. 80% of the population should not be able to enforce on the minority 20% what the 80% would never accept themselves. Consumer groups should not always drive the market or regulatory practice. Regulators and politicians should note.

  6. Sam, as you are also a firm supporter of RDR, what are you moaning about?

  7. Tend to agree with Sam Caunt.

    Mr Bamford was an ardent supporter of RDR and often castigated others for not being so supportive and as Sam says cost was just one of the issues many people had and still have with it.

    To complain now when you supported it so strongly does rather imply you did not listen to what many others said and predicted.

    You have what you wanted so now you have to work with the consequences.

    Can’t disagree with you on the horrific cost but how you could not forsee that given the way the FSA has increased costs year on year staggers me and with two regulators that cost was hardly likely to get less.

  8. In the 25 years that I have worked in the financial services as a Tied adviser for 3 different companies and now as independent, I have seen adviser numbers drop from 240000 down to about 25000 along with about 90 Life companies leaving the UK or shutting up shop, some with well over 100 years trading.
    The main change has been regulation regulation and more regulation.
    The outcome is a change from one of the highest savings and pensions ratios to one of the lowest of the developed nations and a vast increase in “miss selling” in
    Proportion to the additional regulation.
    Strange but true, facts are stubborn things!

  9. @Patrick Schan

    Thanks for your comments, Patrick. Rather than bemoaning the negatives of the RDR, of which I accept cost is a major problem, I was trying to highlight the overall unnecessary cost and complexity of retail financial services regulation. I suspect we would be in a similar position regarding cost and time burden of regulation today even if the RDR had never existed. The two are not necessarily linked.

  10. @Sam Caunt

    I disagree, Sam. Cost was always a concern during the development of the RDR. Whilst I’ve been (and remain) a supporter of the RDR, I’ve also always struggled to see why it should cost so much to implement. The cost of implementing the RDR to my own firm has been minimal, because we had already brought our working practices up to a modern standard. Perhaps we should be trying to understand where this colossal costs to the consumer for implementing the RDR are really coming from?

  11. Those avid supporters of the RDR will soon regret their support as it is clear that as 13% of advisers have already left the industry and this is only the first 3 months of 2013, very soon the regulatory costs will be unsupportable.

    If these people had to answer for how much they spend of our money on timewasting exercises and inappropriate information gathering they would very soon be out of a job.

    They couldn’t run a party in a brewery with free beer.

  12. Finance Regulation is very similar to the EEC. It legislates on how straight a banana should be, but it cannot get it own accounts signed off. It spends time heavily regulating the IFA but looks the other way when the banks act rashly.

    It is because it is unaccountable that it can ignore the rule of law. It employs people who insist that advisers should have advanced qualifications but does not require any qualifications for its staff. Its costs are out of all control and the main purpose for its existence is to prolong its own existence.

    The staff have an incestuous relationship with the big organisations it regulates, as evidenced by the fact that Sants is now employed by one of the organisations it failed to regulate.

    Its investigations and fines seem to come about because of prompting from the US regulators rather than by any internal diligence.

    It has no regular consultation process say like a regular committee made up of all parts of the finance industry to ensure that regulation changes are viable and realistic.

    It is no longer fit for the purpose but the Government trys to fix it by adding more and more responsibilities to it rather than going back to the drawing board and starting again. If a new regulation authority was set up now doubtless it would be completely different from what is in place now.

    Regulation should be proportionate, the FSA/FCA has just become rediculous.

  13. All this naive conjecture assumes that all ‘advisers’ are now regulated. Yes, for the regulated the costs have gone up and therefore for their clients. How many ‘retired’ advisers are now out there helping their old clients fill out online applications for their ISAs, bonds and life assurance? Crooks will always be crooks – RDR or not and to think otherwise is just crass and reckless stupidity. Of those ‘retired’ folks providing ‘pure’ planning and let’s say “IT assistance”, how many are managing to do it for a lot less than a regulated adviser as they have no interim levy to worry about this week and for a bit of cash can do it for even less. No doubt the surge in DIY online applications will be regarded by the FSA as a success of the MAS – absolute bleedin’ muppets. At least they won’t be able to come back on the FSCS when it all goes pear shaped – or will they?

  14. Re anon 3.23. Good point, might be an idea to look at being a “none advised” pure financial services Facilitator and IT service to help clients access unit linked investments. Should be able to help clients get what THEY want at a lower cost because of the lack of regulation costs and no investment advice given as the client chooses the optios they feel are suitable for themselves. Result!

  15. @ 4.25pm – I wonder daily why I don’t, my blood pressure would drop overnight. No stress, no regulator, no regulatory fees, no PI and happier clients.
    There is just some little moral compass which tells me that an early grave is the right thing to do. It must be because I passed RO1 ;-^)

  16. Much of our regulatory costs are simply down to the decision by the regulator to fight the industry rather than work with it. The time we spend on files, the compliance consultants etc are all their because we were told to ‘be very afraid’ and we are.

    However, most advisers are in this for the long term and want to do the right thing. A regulator that helped them and acted like a compliance consultant would reduce costs, stress and would improve outcomes for consumers.

    After all, if you work with someone you often find their weaknesses quickly. How about a regulator that help to resolve these without making threats?

  17. RegulatorSaurusRex 25th March 2013 at 10:56 pm

    What are these poor lambs bleating about now?

    Their bedfellows are the reason why costs are increasing each and every day.

    Too many advisers are incompetent, illiterate and downright criminal.

    Be very afraid, all of you.

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