Anyone reading the rhetorical flourishes around the setting up of the Financial Conduct Authority could be forgiven for thinking that Ghengis Khan and the heathen hordes were about to sweep out of Asia and lay waste to the financial services industry, anticipating misselling and closing firms down just in case.
While there is little doubt that the political imperative for the FCA lies in proving it can head off trouble sooner than the FSA has managed, the straws in the wind suggest that something more sophisticated may be on the stocks.
Dealing first with evidence, the recent exchange of letters on RDR between FCA chief executive designate Martin Wheatley and Andrew Tyrie MP, the chairman of the Treasury select committee, suggests a rather more skillful and nuanced approach can be expected from the regulator.
Wheatley is quite clearly at pains to get in an early reference to the proportionality of the current attitude towards professional qualifications. Likewise, in his speech announcing the consultation on guidance on sales incentives, there is a passage about the need for a financial services industry because of the need for individuals to save more for retirement and protect more for the unexpected. Hooray.
No doubt, cynics will be saying that this is nothing more than the sugar coating of a bitter pill and that the FSA is simply handling its public relations better. It may be doing that too and no bad thing but the political and economic context suggests that a smarter approach to regulation may be emerging.
In the first place, a regulator executing a particularly difficult agenda will optimise its performance where it can carry oversight bodies like the Treasury committee and the so-called special publics (politicians and expert commentators, for example) with it. But the more striking implication of the remark about the need for a financial services industry is potentially acknowledgement that the policy options open to Government are really rather limited.
The projections for state spending on welfare benefits by the middle of the century are somewhat conjectural but mostly alarming and unaffordable. The shortfall is caused by many things, not least the demise of defined-benefit occupational schemes, to which enrolment was automatic, and the sustained poor performance of equities as an asset class in which many schemes are overweight. Nest is very worthy but it mandates too low a level of retirement saving.
The dilemma for Government is that to increase the saving rate to a realistic level and impose compulsion, the two options that would make a real difference, make ejection from office at the next election pretty certain.
Thus the stage may be set for a quiet reappraisal of conduct risk regulation in the UK and its utility as a contributor to overall public policy. That is not to imply that reviews of perverse incentives will not occur or that misselling will not be cracked down on hard.
But the consumer detriment analysis may become more thoughtful, recognising that distribution capacity is a key contributor to social welfare when the right notes are hit. It may be painful for some advisers and regulators alike to acknowledge but the term “advice” has always been something of a euphemism and an umbrella term for a number of things going on at once. In a society where sufficient compulsory retirement saving is not something politicians can deliver, persuasion to do the prudent thing may be something valuable that advisers can do.
If it is, regulators will have to find some way of distinguishing between good persuasion and bad persuasion. That debate may be about to begin.
Richard Hobbs is director of regulatory consulting at Lansons