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Neil Liversidge: Time to tackle the cost of regulation


Nic Cicutti recently argued against fines being used to reduce regulatory costs to firms. Such was formerly the case under wicked old Labour.

Fortunately that nice Mr Osborne righted that particular wrong. How blessed we are to have a Chancellor from a party that understands business. Since then the Government has pretty much grabbed the lot. Thanks George. My cheque for Tory party membership is in the post – not.

Nic argues fines should fund financial education and debt advice. He challenges Apfa to get behind his idea which he says will “demonstrate [Apfa’s] pro-consumer and lobbying credentials”.

His argument however completely and conveniently ignores the fact that in every business the customer ultimately pays for everything. It also ignores the iniquity in the weird but (for the government) convenient regulatory pick-and-mix hybrid which is UK financial services regulation. In this system, while receipts from fines are nationalised, the costs are completely privatised. Come what may, firms pay.

Nic posits that “fines and compensation costs are a ‘negative incentive’ for the rest of the industry to clean up its act.” So how does that work for the vast majority of firms whose act is clean to start with?

In recent years I’ve written ever larger cheques to the FSCS to compensate victims of firms who did things I would not do in a million years. Not because my act was less than pristine but because regulation failed.

In 2010 another journal ran a front page story on how I’d reported an ‘adviser’ who was running his own mini-Madoff scheme and how for a year the regulator had done nothing. Only then did the enforcement sloth crawl slowly down from its tree. We’d have paid for that one too. Why? Because while fines are nationalised the risks of regulatory failure like its costs are firmly privatised.

Those with long memories will recall how in 2004 Legal & General challenged the FSA over a £1.1m fine it sought to impose on L&G for alleged mortgage endowments misselling. After a six-week hearing the FSA could only prove misselling in eight cases, leading the tribunal to rule it had been wrong to allege these indicated a wider problem with L&G’s sales processes.

Did firms have anything to cheer about when the regulator got this slap? Not really, because we paid the legal costs anyway.

Now the FCA looks like embroiling us in ruinously expensive litigation with Keydata’s Stewart Ford. The one certain outcome is that whether it’s win lose or draw for the FCA v Ford, regulated firms are guaranteed losers who are certain to pick up at least one lot of costs. On the other side of the equation it’s reported that Stewart Ford intends suing the FCA for £750m. That should make for a nice big top-up levy if he wins.

There is a simple moral answer to the fines question. It should be determined by the nature of regulation itself which should be either wholly privatised and self financing or wholly nationalised with risks underwritten by general taxation.

If it is to be private then all fines should be recycled to fund all costs including the FSCS. A no-claims-bonus type system could easily be developed to reward good firms and penalise the less good – Nic’s ‘negative incentive’ made fair and workable.

If it is to be nationalised then firms should pay levies for regulatory oversight only. Fines should go to fund the FSCS with any shortfall being made good from general taxation. Legal costs should likewise be met by government which should keep any damages obtained.

In that way it would be held properly accountable for regulatory failures including reckless and unwise litigation. And only when we get that level of accountability will we get diligent, workable and fair regulation.

Neil Liversidge is managing director of West Riding Personal Financial Solutions 



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There are 7 comments at the moment, we would love to hear your opinion too.

  1. Well said Neil.

  2. Spot on Neil – congratulations on an excellent article. The financial advice community is lucky to have you on the council of its trade body! Dick Carne

  3. Personally I cant disagree Neil !

    The trouble is (and this could apply to the many stories / articles on today’s MM) FCA dogma !!

    Dogma; is a principle or set of principles laid down by an authority as incontrovertibly true. It serves as part of the primary basis of an ideology or belief system, and it cannot be changed or discarded without affecting the very system’s paradigm, or the ideology itself.

    This effects our basic human rights, because whatever we do, however we act, we are enslaved to a regulator who continue to go unchallenged (with parliaments blessing) as its to powerful politically and financially, couple this with the ideology it cant be disproved makes for a very frustrating situation.

    This is so fundamentally wrong, and flies in the face, of living and working in a free democratic country ? maybe we have all been miss-lead !

  4. Neil is spot on but, as with all of the pernicious regulatory impacts, it is symptomatic of a woder problem with infects this country.

    This being the ease with which successive governments are able to offload their responsibilities to an unelected, unrepresentative Teflon-coated body which has little understanding of retail financial services but a clear understanding of how to posture and preen whulst trousering juicy bonuses.

  5. Steven Farrall 10th July 2015 at 5:04 pm

    Indeed. And ignore Cicutti. He’s economically clueless.

    Fines are a penalty. They are not a tax. When the FCA justifies fines as raising money for X, it is acting no better than the simple petty extortions carried out in third world countries by opportunistic ‘police’, (who be fair to them mostly are underpaid, unlike the FCA functionaries who are massively overpaid). Similarly, to justify ‘fines’ as ‘an example to the market’, is equally, well, corrupt. Fines are a punsihment for a transgression, not some device for social engineering.

    And on the subject of fines, the FCA wilfully ignores their incidence in the pursuit of headlines. Lloyds bank wasn’t ‘fined’ £119 Million. That was paid by it’s employees, its shareholders and its customers. In short these ‘fines’ are a massive deceit. It’s what I call regulatory marketing. It’s the classic tactic of all self regarding bureacracies of distributing costs and concentrating benefits (public choice theory again). None of of this is ‘consumer protection’ it’s just naked self interest. In any event who watch’s the watchers? If you think about it we spend most of our time defending our clients from one government policy failure or action after another – confiscatory taxation, destruction of the value of money, failure of the welfare state and so forth.

    However in re FCA levies, ours have risen about 8 fold since 2001. Why? All we have had is unremitting failure from first the Financial Shambles Authority and now the Financial Catastrophe Authority.

    Over that period our trade and professional representatives have utterly failed to carry the fight to the FSA/FCA. The CII, the PFS, the IFP, and APFA have all failed, abjectly, to make any difference at all to any of this. Some of it is simple cronyism, some is outright incompetence, or they just don’t have will. All of them backed the RDR, which is a failure from its very inception as an assualt of private property, the sanctity of private contract, the jobs of thousands of innocent people, the business values of others and liberty.

    It is absolutely no good at all taking on the bureaucrats on the ground of their chossing. They are far more skilled at the tactics of deceit than we are and they use their funding stream (funded by our clients) to argue against us (as Neil has said). But it would not take that much to take the fight to them. To put them on the back foot. We have the truth. We have the arguements. We have the philosophy and above we still have our clients on our side. And at the end of the day, I don’t know about you, but why I fight the Financial Catstrophe Authority and it’s failures is because they are destroying our clients wealth.

    This is why I got involved in Adviser Alliance. This is why I have spent time on getting Libertatem launched. This is why it needs your – very modest support – so that we can back a team that has a track record in taking the fight to these appalling self interested functionaries and winning.

  6. Julian Stevens 14th July 2015 at 9:41 am

    Fine words and sentiments, Neil but notable by its absence is any outline of APFA’s plan of action (beyond mere lobbying) to bring these changes about. Does it have one? I think we’re entitled to know.

  7. Neil Liversidge 15th July 2015 at 4:44 pm

    Hi Julian. Actually you, Julian, are not entitled to personal blow-by-blow updates from me on everything APFA does and plans to do. I am elected by the small firms constituency of which you are not part, getting your APFA representation as you do on the cheap as you do via your network. I am a volunteer, giving my time to APFA for free, and contributing to APFA financially, as well as lobbying on my own account at my own expense on the behalf of advisers. I suggest you try and do something equally as constructive yourself. For once in your life at least.

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