With the Conservatives working out how to improve financial services regulation, it is wise to revisit the basics.
When the FSA was set up by the Financial Services and Markets Act 2000, as a consolidation of the diverse regulatory bodies, it was given four statutory objectives – maintaining confidence in the financial system, promoting public understanding of the financial system, securing the appropriate degree of protection for consumers band reducing financial crime by business.
Those seem worthy goals but surely it would have been better had the new super-regulator also been charged with encouraging the nation to seek self-sufficiency in savings, pension provision and protection against personal catastrophe?
Perhaps the reason it was not was that the act was Gordon Brown’s creation and he and his have always been happy to take the responsibility for such common sense away from individuals and give it to the state. Had it been framed by a Tory, the act would surely have given the FSA duties aimed at directly improving the nation’s personal finances. The fifth objective might thus read: encouraging proper personal financial provision.
FSA officials often make clear that while they wish no harm to those of us keen to get people doing more for themselves, they are broadly disinterested in our efforts other than when they might threaten the four objectives above. They use carefully constructed cost-benefit analyses to show they are not actually reducing the provision of financial advice by too much but this is (often shameless) window-dressing and, in any event, ignore the screamingly obvious truth that the amount of encouragement of proper personal financial provision available has done nothing but shrink since the advent of the FSA, indeed of regulation. Only debt, the opposite of proper personal financial provision, has grown on the FSA’s watch.
Don’t get me wrong, what was offered before regulation was so variable in quality as to be a lottery. The plausible man from Allied Dunbar sold very expensive savings plans, and had to be reformed, but he did sell a lot of them and did help maintain a savings culture through the spendthrift 1980s. His replacement, approved and controlled by regulation, has retreated to dealing with those few already self-persuaded to be sensible.
Even this encourager of good behaviour, be he IFA or tied agent, and huge improvement that he is over the man from Allied Dunbar, is not yet good enough. Eventually we will all be as good as our regulator requires but there will not be many of us. As Dan Waters said recently, “you can’t make an omelette without breaking eggs”. What the FSA is not bothered about and should be, is that the eggs being thoroughly smashed are the golden ones of Britons’ savings and insurance habits.
So the Tories need to start with the four objectives and make them five, if they are to meaningfully reform the retail end of financial services and not leave it in Brownian stasis. I fear they are focusing on the first objective above, perhaps because the current crises of confidence was almost entirely down to Labour Treasury policy and that rightly gives good headlines, but the deeper threat that Gordon Brown’s mendacious tenure has delivered is that savings and protection are no longer seen as the virtuous decision of the common man, but rather the province of the rich. Any more than merely political reform of regulation must change that urgently.
Tom Baigrie is managing director of LifeSearch