Sometimes deciphering FSA press releases makes me feel the way a Kremlinologist might have felt during the Cold War. On its face, the mystery shopping exercise is a fairly predictable story of bancassurers unable get tight enough on compliance with the suitability rules, particularly around the vexed question of customers’ attitude to risk.
But dig a little deeper into this pre-RDR research and a number of messages seem to come out. It is at least an implication that the FSA is saying that some institutions have succeeded in developing their business models in the mass market space further than others. Those that have did relatively better in the mystery shopping and impliedly were heading towards RDR in better shape than some others. Effectively it is urging the institutions to find a way of succeeding in this market since it would rather not have to deal with the political fall out of a mass exodus from high street advice.
It must be inevitable that the Financial Conduct Authority will repeat the mystery shopping exercise in due course, presumably scheduled to fit in with the thematic work to review the RDR post-implementation. Any bancassurer falling short again seems likely to pass go without collecting £200 and enjoy an enforcement investigation with its inevitable findings of rule breaches.
The inevitability of all this begs a still deeper question about where the regulator thinks this is getting us. The concomitant question is how our financial institutions engage successfully with their customers. Both regulator and industry articulate in principle messages about putting the consumer at the centre of what they do. What they do is for us. The RDR is intended to enable consumers to engage better with the industry by building levels of trust between customers and industry. But which gullible consumer exactly does either regulator or industry think would trust an industry which is repeatedly criticised for basic shortcomings and handed down ever greater fines?
It is not as if the pipeline of potential misselling scandals is dry. We have interest-only mortgages to look forward to. Bundled bank accounts are rumbling along. We need a different kind of conversation between the industry and the regulator. Taking up ritual positions should not be a substitute for looking beneath the workings of this market and developing new approaches to its regulation. Neither consumers, nor financial institutions act rationally. Sooner or later, the regulator might think its cause and effect approach – “if I punish the children enough they will behave as I want them to” – has one or two flaws in it.
If we are not to be sitting here in 2014 or 2015 reviewing another mystery shopping report showing that the customer was not put first we need to start thinking differently. Where a market does not clear properly, which means the price mechanism does not reconcile the conflicting interests of buyer and seller, we have a very profound problem. Twenty-five years of conduct risk regulation has little to show for it other than a much smaller but still toxic market. Hello, is there anyone listening?
Richard Hobbs is director of regulatory consulting at Lansons