As Financial Conduct Authority managing director Martin Wheatley lays out his vision of how consumers will be protected by the future FCA, I hope he reflects on the root causes of the utter mess savings, investment and protection is in today.
Any objective analysis would surely find the consumer has been awfully served by regulated financial services since 1987. The four statutory objectives of regulation have patently not been achieved these last 25 years.
Rather, the ordinary person’s desire to save and insure has been catastrophically eroded, indebtedness has soared and, unlike 1986, the average person now has no viable plan for remaining independent of the state when their earnings cease through retirement or ill health. The nation is sleepwalking towards personal poverty as a result.
We have all failed, from Chancellors to bank clerks and all points in between but it is those who have had power who must be chiefly to blame and it is their successors that must turn the thing round.
The reason it is the rule-makers not the rule-breakers who are chiefly to blame is because the Treasury and regulator have been unable to resist increasing their responsibilities to the point where no body in a free society can adequately discharge them. Rather than confining themselves to weeding out conmen and fraudsters, they have set out to ensure there is no way a consumer can strike a bad financial services deal.
In that effort, they must always fail but along the way the worthy desire has caused them to gather up all sorts of powers and levy all sorts of charges and taxes. But at every step, as always happens when one overreaches one’s ability, using those has caused unintended consequences far, far worse than the evils they looked to eradicate.
Perhaps the best example of this is that, in order to rein in a few fraudulent employers, they destroyed the entire private sector defined-benefit pension scheme model. It was the world’s finest method of placing long-term investment risk where it could best be locally borne. When they added to that the destruction of with-profits risk-sharing because it could never be perfectly fair to all and to stop a few providers overstating potential returns, they left consumers at the mercy of volatile markets and the resulting shocks meant the ordinary person simply stopped investing.
There is an endless litany of similar collateral damage and cost far exceeding the beneficial effects, culminating in the latest Financial Services Compensation Scheme and FSA budget increases, all falling ever more damagingly on the relatively few of the regulated who survive.
Of course, it is various misbehaviours within the industry that have continuously given the regulator reasons to take power but at every step the regulator has wielded power with such clumsiness that the innocent consumer has been unwittingly crucified.
Martin Wheatley needs to urgently consider how best he can stop that continuing and use his powers to best protect consumers against their impending poverty.
Tom Baigrie is chief executive of Lifesearch