Many years ago, I attended a public debate in London between Tony Benn and a leading representative of a socialist sect. There were hundreds of supporters from the 57-plus varieties of left-wing thought in the audience.
The one thing that struck me forcefully as I made my way out – vowing never to return – was the way they seemed congenitally incapable of hearing what each other was saying, preferring instead to debate entirely imaginary versions of the other side’s argument. If you cannot practice active listening, I thought, what chance is there of persuading the wider public of your aims?
I was left with a similar feeling last week, after reading a column by LEBC director of public policy Kay Ingram on the difference between advice and guidance.
Ingram was responding to a speech by FCA chairman John Griffith-Jones to an audience in Cambridge last month, in which he attempted to set out the five key building blocks of financial conduct regulation. Griffith- Jones’ speech can be found on the FCA website. For me, one of its intriguing aspects is the admission that it is virtually impossible to enforce zero tolerance in relation to conduct regulation.
The FCA chairman identified two phases in the regulation of the industry: ex-ante, or before the event, and ex-post, after the event. Griffith-Jones said: “Ex-ante we seek to anticipate the more material things that are more likely to go wrong, and to pass rules, conduct supervision, or occasionally to ban practices [to] reduce the likelihood of such events crystallising with detriment.
“Sometimes we can foresee issues before they surface, but more frequently it is the speed of response to early signals that is key to containing the scale of the damage that might otherwise occur. Sometimes, regrettably, it has to be a case of learning with hindsight, but this is still better than letting history repeat itself.”
Griffith-Jones seemed to imply it may be necessary to identify a level of “acceptable detriment” that consumers must take on the chin because attempts to prevent all financial harm is simply impossible.
There are those of us who have long argued that different watchdogs over many decades have been too slow to act – Arch cru, Keydata, precipice bonds, self-certified mortgages and Equitable Life all spring to mind. It leads to a huge loss of consumer confidence and increased compensation and regulatory costs for advisers, so against that backdrop the FCA chairman’s comments are startling.
Intriguingly, having identified the Financial Ombudsman Service and the Financial Services Compensation Scheme as lifebelts that help maintain a modicum of consumer confidence in the sector, Griffith-Jones points out the £25bn-plus cost of settling the banks’ misselling of payment protection insurance suggests far earlier intervention would ultimately have been beneficial to the industry. I imagine most banks would belatedly concur with this sentiment.
What the regulator knows about advice
It was in the context of setting out a context for the FCA’s future mission statement that Griffith-Jones then briefly ventured into the realm of advice versus guidance, pointing out what he calls “the remorseless march of technology” has made the line between them harder
He said: “Rules that were designed for the paperwork era do not work necessarily for the online one. The distinction between advice and guidance, once reasonably clear, has become much greyer with the advent of platforms and the potential of robo-advice.”
All this makes the basis for an interesting argument about both the limits and effectiveness of regulatory intervention, one in which advisers have a critical interest in taking part.
The problem for me is the response by Ingram to Griffith-Jones’s argument. In her best “eat up your greens” manner, she proceeds to lecture the FCA chairman on the difference between guidance and advice.
My best guess is if you set the FCA chairman a quick test, he would probably be able to rattle off much the same points as Ingram. Yes, guidance providers give generic, not specific information. Yes, they sometimes (not always) take responsibility for the implementation of that advice. Yes, advisers must be qualified. But what qualifications do you expect a computer software programme to have? And if it were to identify a specific product based on a consumer’s input of their financial details, is that guidance or advice?
The real issue is not that Griffith-Jones and the FCA’s 3,000-odd staff do not get the formal distinction between the two concepts but that, as he says, technology is blurring that distinction and regulators must find ways of intervening in the new world we all find ourselves in.
Ingram’s comments are not a contribution to that discussion. They involve a didactic approach which makes it harder for advisers to engage successfully with the debate over the future of business conduct regulation. Time for some active listening, methinks.
Nic Cicutti can be contacted at firstname.lastname@example.org