About 15 years ago, I received a call from a functionary at a newly-formed regulatory body: would I like to speak at its first “town hall” meeting in Bristol? The FSA, then in its infancy, had decided to embark on a meet-the-people tour of Britain.
And so it was that several months later I stood on the same platform as FSA chairman Howard Davies, FSA consumer relations director Christine Farnish and PIA non-executive director Amanda Davidson, quaking in front of several hundred Bristolians as they bombarded the panel with difficult questions.
The meeting was dubbed a huge “success” and two more were held in the course of 1999, although I don’t recall the FSA persevering with the concept after its third run-out in York in March that year. Certainly, Sir Howard, as he later became, never went on the road again after his first Bristol gig.
In fact, since then he is no longer in the regulatory frontline at all, having decamped to France to lecture on the subject, following several years in charge at the London School of Economics. As they say: “If you can’t do, teach.”
Christine Farnish has also left financial services, after a confused trajectory that took her to the NAPF and Barclays, while picking up non-exec directorships and sinecures from sources as varied as the Family and Parenting Institute and the Civil Service Commission, Abta, Consumer Focus and Aggregate Industries, where she presumably contributes her insights into asphalt, concrete and paving. Nice work if you can get it.
Only Amanda is still bravely soldiering on, recently transferring from the FSA board to that of the new Financial Conduct Authority. She also previously served on various PIA bodies. In becoming one of the longest-serving directors within the regulatory establishment, she is probably in line for a damehood. If not, she deserves to be.
Quite whether the FCA will mark a radical new departure for Amanda and the 3,000-odd staff who have transferred over from the FSA is open to question, however.
Over the past few months we have seen a number of contradictory comments emanating from the new regulator. On the one hand, its incoming chief executive Martin Wheatley talks about more hands-on regulation, where the FCA will “be much more proactive, acting earlier and more decisively.”
On the other hand, he has given interviews in which he points out – correctly – that simply fining sections of the industry for regulatory failures does not work effectively. The cost of fines ultimately is either borne by shareholders or by consumers. Only rarely do those responsible pay the price of their failure to oversee the sales activities of their staff.
This despite the fact that one of the striking aspects of so many mis-selling scandals of the past two decades was the way most were well signposted long before they came under the FSA’s belated microscope.
PPI is a classic example of this. Journalists were writing about PPI at least 10 years ago. Yet no action was taken by any of the major banks involved, despite the issue staring them in the face for a long time. And no senior executive bit the dust for a catalogue of failures that is costing the banks many billions to put right. Had the regulator listened to scribes, the bill would only have been a fraction of this.
PPI also raises another crucial question, that of the FCA’s much-vaunted promise to intervene in the marketing of products where it believes they are harmful or confusing to consumers.
There are two aspects to this. The first is that the idea of PPI itself was not a bad one. Arguably, some people would find it highly beneficial to insure their loans or credit cards against the possibility they might become ill or lose their jobs.
The real problem, however, was not with the cover itself but with a confluence of factors that were never addressed by previous regulators.
First was the way it was designed: it was deliberately structured on a single premium basis, with all costs loaded on the policy at the start and consumers having to pay it back over the lifetime’s policy. This made it highly uneconomic, with PPI premiums making up almost 50 per cent of some personal loans.
Second was the fact that claims experience was very poor: a report from Citizens’ Advice found that PPI policies were less likely to pay out to claimants than any other protection product on the market.
The third factor was the hard sell technique from the banks themselves. Their staff used every trick in the book to ram these products down the throats of unsuitable customers.
The reason for mentioning these issues is that while Martin Wheatley has said that, unlike Hector Sants’ comments about the FSA, he does not intend to rule by fear and he favours light touch regulation, the reality of the market is that it does not respond to carrots.
If Wheatley genuinely wants to establish greater long-term consumer confidence he will need to be incredibly quick to intervene, pro-active in terms of assessing product issues and hard on those who err, if only to show he means business.
Arguably, it did not need a new regulator to deliver this, just a better old one – without the town hall meetings.
Nic Cicutti can be contacted at firstname.lastname@example.org