View more on these topics

Nic Cicutti: No time to be thinking about scrapping regulation

Has there ever been a golden age when consumers trusted the financial services sector? I found myself pondering the question last week, as I read a comment piece in Money Marketing by Informed Choice executive director Nick Bamford.

Nick was writing about his experience at an FSA lecture, where he was told trust in the industry “no longer” existed – an issue that “needed to be addressed by more effective regulation.”

The annual cost of this regulation, according to Nick, is £500m. This helps prevent consumer detriment worth £500m a year, he says.

If I read him correctly, and I think I did, Nick was making the point that the price of rectifying the consumer detriment was the same as the damage itself, so why bother? Assuming detriment always remains at the same level, would it not be easier to do away with regulation itself, thereby saving £500m?

After all, Nick pointed out, were financial regulation to disappear overnight it would not affect the way he runs his own business in any way. He would continue offering the same consumer-focused service as before and so would the majority of IFAs that he knows.

That being so, what is the point of spending £500m on regulation? Especially given how Nick and his mates are happy to peer-review their colleagues to make sure they are on the right track when it comes to following the simple rules he’d like them to follow.

Now, I know Nick to be an original and well-respected thinker in the field of financial services, so his interesting argument deserves serious scrutiny.

The first point to note is that it is not clear exactly how much of a majority he thinks he is in. To take just one very recent example, it was the FSA that calculated up to 800 IFAs were involved in error-strewn sales of Arch cru products to their clients.

Even if we accept that many of those sales were indeed compliant, there are many more cases every year, involving hundreds of other IFAs, that are not. The misbehaving minority turns out to be a very large one.

The second problem I have with Nick’s proposed approach is over his assumption about of the purpose of regulation. Ultimately, if the FSA/FCA’s role is simply to stop existing consumer detriment, then the cost of preventing it is indeed likely to be disproportionately expensive. Oh, and by the way, like many IFAs I’ve never been entirely sure where the FSA got its consumer detriment figures from.

But that’s not really what Nick is saying: the implication of his comment in Money Marketing is that if the FSA stops regulating then the amount of consumer detriment will remain the same.

That is an intriguing suggestion. Applying the same theory in other areas of public life, one might plausibly argue that if we scrapped the current police budget and stopped sending criminals to jail, levels of crime would remain broadly the same as they are today.

After all, the vast majority of the UK population is not criminally-minded, only a small part of it. Yet we spend more than £12bn on policing in England and Wales, not to mention another £5bn incarcerating people.

The cost of, say, violent crime “only” works out at £200 or so per person and “only” affects a relatively tiny number. Surely we could just insure much more cheaply against such an eventuality and introduce a “very simple set of rules… about what constitutes acceptable behaviour?”

Sadly, the minute you apply Nick’s behavioural model in the real as opposed to the fantasy world, you begin to realise that it doesn’t really have a leg to stand on.

That’s because part of the purpose of regulation, at the end of the day, is deterrence: stopping errant sections of the financial services industry from taking even more advantage of consumers than they do now, preventing an almost inevitable free-for-all were the FSA/FCA not there. You only have to go back to the late 1980s and the pensions and endowment mis-selling scandals to see that.

Ironically, where Nick is absolutely correct is in his other point, where he questions the notion that public trust is “addressed by more effective regulation”.

It isn’t. First, because despite an implicit assumption in the words “no longer” that it must have existed at some point, I see no evidence over the past 20 years that trust was ever present in any real sense. At best there was acquiescent ignorance, shattered by the many scandals of the past few decades.

Second, because the primary point of regulation is to deter, detect and punish miscreants operating in the financial services industry, not to engender a feel-good factor among punters. Indeed, every uncovered outrage is more likely to make consumers feel worse, not better.

Where financial advisers can help develop and improve public trust is by doing precisely the things Nick and IFAs like him are doing: giving superb advice, treating clients fairly, showing in practice the value of genuine financial planning.

Until the public is won over, firms like Nick’s own will continue to pay the very real price for the actions of a minority in the sector. Unfortunately, scrapping regulation instead is not a short cut but a dead end.

Nic Cicutti can be contacted via


News and expert analysis straight to your inbox

Sign up


There are 5 comments at the moment, we would love to hear your opinion too.

  1. I can see where Mr Bamford is coming from and I pointed out some years ago that the cost of regulation seemed to exceed the benefit to consumers (ignoring the banking crisis) but I was castigated by some for saying so.
    I am still in favour of “product regulation” where the costs of regulation, commission and commission bias and charges can all be controlled and monitored. Sadly those that regulate us don’t want that as it puts them in a position where they will be responsible and accountable, but even that can be managed.
    When you have regulation and indeed Government where there is no accountability or responsibility for their own mistakes then you have a very biased system and let’s face it our Government and civil servants make more mistakes with tax payers money than most IFA’s would do in their lifetime. You only have to look at the recent Virgin trains fiasco which is reportedly going to cost the tax payer some £40 to £50 million pounds, which no one bats an eyelid about. Or indeed the waste with some of the defence contracts that have cost the tax payer £billions. The Government knows full well however that tax-payers money is like a tap, so when they waste some, more keeps flowing in and when the flow is not enough they just raise more taxes. It is not their own money so does not feel the same.
    Take endowments which the FSA were keen to claim had been incorrectly sold to many, mainly as far as I can see because they did not document that they did not guarantee to pay the loan at the end (some were of course incorrectly sold for other reasons) . But how much of the failure of endowments to perform as one had hoped (and had done for many years in the past) was down to poor Government policy (and thus poor investment returns) from the mistake with the ERM (Exchange Rate Mechanism) when interest rates went up to 15% or indeed the latest banking crisis (widely regarded as a failure by the FSA). All of these had at some stage a damaging effect on investments (and still are), so where does the real failure lie? The wider picture was never considered in my view and that includes what “with profit” funds were doing and also the regulator forcing pension funds and with profit funds to reduce risk (thus selling equities which may well have had a further effect to reduce returns).
    When you have a system that allows those who rule and judge over us with to have no personal accountability or responsibility (and sadly less morals and standards) then the system starts to break down as people start to feel there is little or no justice to protect them, despite never ending rules and regulations that are supposed to do just that.
    Our regulators who are judge, jury, ruler and sentencing authority are flawed as they have complete control yet no one can question their judgement as this Government and Treasury Select Committee have found out and it seems our Government have chosen to be impotent on the matter preferring to change the structure but not the real issues that consumers really want and as far as I can see they just want the “product” to do “what it says on the tin”. It would be equally nice if our Government could do the same.
    If you think qualifications are going to solve our problems then why is the compensation bill in the NHS is currently running at over £16 billion, 90% of which is due to clinical negligence and do they pay towards the mistakes they make?

    I am sure some with diagree but it should make for useful debate.

  2. I agree totally – I would change, I wouldn’t do any of the admin, pointless RWL and never post anything to a client ever again.

    We need the FSA to keep paraplanners and admin people in a job.

  3. I think the point Nic (C) is missing is that our tiny tiny part of the economy seems to be regulated disproportionately heavily and ineffectively when measured against other industries. Nic uses crime as a comparison (?), when a far more suitable comparison would be to look at regulation in other areas where people spend money to “buy” things and have personal choice. Eg Travel, Cars etc….far more spent on such items than on financial products I think, and yet the “regulation” generally focuses on making sure the product (the car) is safe and roadworthy, and not on making sure that the “perfect” car to match the consumer situation is chosen – why? because so much of it is subjective, as in our world.
    I doubt that Nick (B)s original point was advocating financial anarchy, but perhaps that if someone buys the pension equivalent of a Vauxhall Corsa when perhaps a Renault Clio may have been fractionally more suitable, it’s not that big a “loss” to justify making the whole buying a car process impossibly difficult, long winded, complex and of course needlessly expensive.

  4. We must the only industry where faulty goods are the fault of the seller and not the manufacturer!

  5. When I wrote that article I had no expectation that there was any prospect that we would see the abolition of financial services regulations.There is absolutely no chance of that happening.

    I am actually in favour of regulation as its is a) effective, b) simple and c) cost effective. What we have and what we might expect to get are none of those things.

    Nic have you read the Adam Smith Institute paper- The Financial Conduct Authority should be strangled at birth? It would be interesting to read your comments on the content of that paper

Leave a comment


Why register with Money Marketing ?

Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

News & analysis delivered directly to your inbox
Register today to receive our range of news alerts including daily and weekly briefings

Money Marketing Events
Be the first to hear about our industry leading conferences, awards, roundtables and more.

Research and insight
Take part in and see the results of Money Marketing's flagship investigations into industry trends.

Have your say
Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

Register now

Having problems?

Contact us on +44 (0)20 7292 3712

Lines are open Monday to Friday 9:00am -5.00pm