A leading economist has called for an overhaul of “intrusive” and “ineffective” financial services regulation to shift the focus away from “ever more elaborate rules”.
Professor John Kay led a Government-commissioned report last July which called for fund managers to align pay with client interests.
Speaking at an Association of Private Client Investment Managers and Stockbrokers conference in London this week, Kay said investors have suffered poor returns given the number of parties that take their cut such as advisers, platforms, nominees, trustees and fund managers.
He argued the last 25 years have seen the creation of a regulatory structure which allows “perverse incentives” which drive poor customer outcomes. He said the regulator should focus instead on helping companies raise money and provide good returns for investors.
Kay said: “We need to rethink the philosophy of regulation along structural lines. We have regulation which is on the one hand very extensive and intrusive, and yet ineffective in meeting the underlying needs of customers and companies.”
Kay said the move to separate retail banking divisions from investment arms is “just the beginning” of the kind of regulatory restructure he has in mind, with the focus on eliminating conflicts of interest rather than attempting to control them.
He added: “The thrust of regulation should be much less about the prescription of ever more elaborate rules and much more about the structure of the industry.”
Facts & Figures Financial Planners managing director Simon Webster says: “Professor Kay is right to say rules-based regulation does not work, as pages and pages of disclosure documents end up helping no one. This is a worthy idea but I doubt the regulator will pay any attention.”