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Nick Bamford: What the FCA must learn from 30 years of regulatory failure

Way back in time (before some readers of this magazine were even born), I made a decision to become an independent financial adviser. I remember at the time being told by some colleagues it was a poor decision because the recently introduced Financial Services Act 1986 would eliminate independent advice.

A similar message has been repeated a number of times since, most notably around commission disclosure in 1995 and the RDR abolition of said commission in 2012. Yet here we still are.

The regulation of financial services has been delivered by a range of players tasked with consumer protection in the sector; SIB, LAUTRO, FIMBRA, PIA and the FSA have all morphed over time and are now replaced by the FCA.

But I would argue that the consumer today is no better protected than they were in the “wild west” days 30-odd years ago. Recently commenting on the debacle of mini-bond firm London Capital & Finance, West Riding Personal Financial Solutions owner Neil Liversidge used an expression that resonated with me. He referred to the Financial Services Compensation Scheme as the “failed regulation tax”.

How true is that? After decades of financial services regulation costing many billions of pounds, consumers are still being scammed out of their hard-earned cash and sold inappropriate – and often unregulated – investments that are simply a way of changing their money into someone else’s.

What is the regulatory knee-jerk response to this? Usually, it is to carry out some sort of review.

This is generally followed by some sort of consultation, which then leads on to the introduction of more rules and guidance.

True, it is a complex financial world out there, but what we really need is some simple, high-level regulation.

FCA chief executive Andrew Bailey has recently spoken of a need for outcomes-based regulation. It is almost as if he has found a copy of a predecessor’s speech in his desk drawer.

Get rid of the FCA rulebook and replace it with a simple code of behaviour that focuses on suitability for the client and transparency of such things as risk and cost. Just bin the rest of it; it is just noise that does little to protect the consumer.

Saying that, it would take a pretty substantial change in thinking by the people at the top of the regulatory food chain. They would have to give up their empire building and see their budgets slashed by having to focus on one simple question: is regulation actually working for the consumer?

They would have to accept that, when the FSCS pays out money, it is a sign not of a competent and effective regulatory system but of the exact opposite – of regulatory failure.

It is unlikely I will be around to see the end of the next 30 years of financial regulation, but wouldn’t it be great to know the financial services consumers of the future are better served than those of the past three decades?

Nick Bamford is executive director at Informed Choice


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There are 22 comments at the moment, we would love to hear your opinion too.

  1. Nick ,
    I could not agree with you more.
    I have watched the failure of regulation over the last 30 years with dismay.
    The FCA should be made responsible for their failure not to ensure that products and services are fit for purpose in the areas where consumers need to be protected.
    Sadly responsibility for consumer decisions is now The IFA’s responsibility rather than the consumers which is ridiculous.
    Everyone knows now that if an investment decision goes wrong you just complain and you generally get your money back.
    If an investment looks too good to be true, there is a very good chance that it is!! This has been the case since time in memorial

  2. Finally, what we have all been thinking since Lautro and Fimbra were introduced. I think I may forward this concise precis of what has occurred in the last 30 or so years to my MP.

    • Julian Stevens 17th May 2019 at 8:26 pm

      If he’s anything like my useless LibDem MP (’til the last election), he just won’t grasp the magnitude of the problem or what we’re up against. As did mine, he may send a copy of your letter to the FCA, but all he’ll receive in return is a fob-off response which, instead of challenging, he’ll just forward to you and, as far as he’s concerned, that’ll be job done. What is really needed is a concerted Parliamentary campaign to bring the FCA to book and to force it to change its ways. That can only be achieved by granting the TSC the powers it needs and plainly would like to be able to impose on the FCA unassailable directives as to what it shall and shall not do, backed up with stiff penalties on individuals for non-compliance. As things presently stand, the FCA remains free just to show a bit of token humility but, in practice, not change its ways one jot. Effectively, it can say: Yeah, yeah, lessons have been learned, we’ll try to do better going forward but, in reality, all its representative is thinking is: Up yours, we can do what we want and there’s nothing you can do about it so go screw yourselves.

      That said, yes, an excellent article Nick.

    • The FCA cannot reform itself and change needs an external agency. Before that happens (if ever), there will just be a sucession of sackings at the top, and nothing else. The MPs just aren’t up to it. We are living in an age which could be called “The Rise of the Thickocracy” and its certainly an era where gobbing off beats erudition.

      My MP, must be nearly the lowest achiever ever to have collected £75K a year plus expenses. Dropped out of university and then spent half a career spud-picking, bar working, housekeeping and working in a DIY store in Croydon. In his own words, “Having an idea of how retail works is useful, due to its multiple aspects”. Lawn feed over there, wallpaper paste here. Literally, multiple. Now I’m not knocking B&Q, but its not really feeling the white heat of the furnace is it? It’s not even being a small entrepreneur running your own shop. It’s the narrowness of their world as much as the lack of self-awareness that is so deeply shocking.

      That, folks, is what we are up against.

  3. Nick thank you, and have great weekend ….you made mine …I am now going to switch of my computer (just in case of something may spoil my smile) open the fridge and take a beer over to the harbour watch the fishing boats come and go ….

  4. Martin Tilley 17th May 2019 at 1:46 pm

    Otherwise, in the case of SIPP and unregulated investments you get the Transparency Task Force suggesting that if you can’t regulate for good consumer outcomes, ban them altogether.

  5. “Get rid of the FCA rulebook and replace it with a simple code of behaviour that focuses on suitability for the client and transparency of such things as risk and cost.”

    This would also solve the issue of exclusion and allow tailored solutions for the less wealthy. Common sense could make a comeback, shock!

    Great piece, nomination for article of the year…

  6. Duncan Gafney 17th May 2019 at 4:26 pm

    In this age of political correctness and overarching belief that people’s lives need interfering in for their own good, It seems unlikely that it will happen.

    I wish it would, but unless they also introduce some element that the client is allowed to make wrong decisions and that they sometimes have nobody but themselves to blame it still wouldn’t achieve much.

    People make choices, sometimes they make bad choices, the moment you try and protect them from the consequences of bad choices, you effectively tell them, you don’t need to learn, you don’t need to take care and they then are more likely to make bad choices.

    That said by far the best option for most clients would be to reduce the levels of regulation, because ultimately it’s the clients that pay for everything.

  7. David Bashforth 17th May 2019 at 7:07 pm

    There’s many a problem of the world that could be solved by having one very simple law. “Have you behaved appropriately” and judged by a relevant, impartial, jury of intelligent individuals from a cross spectrum of society. Complex laws, rules and regulations simply create space for interpretation and through which the nefarious can navigate.

  8. Matthew Rodhouse 19th May 2019 at 12:44 pm

    S.13 The Supply of Goods and Services Act 1982 brought into statute the common law duty of care in the performance of any contract for such a supply. You can find legal cases regarding financial advice under first the common law duty and then the statutory duty prior to the introduction of The Financial Services Act 1986. You cannot get more principle-based than this! In my opinion, this high-level principle-based position was seen as failing so self-regulation was brought in to explain what was required to meet this duty of care. (Please note that S.13 The Supply of Goods and Services Act 1982 is partly replaced by S.49 Consumer Rights Act 2015 – when the latter applies, the former no longer applies.) Abolition of regulation will mean that duty of care will be based on legal judgements issued from time to time with much less clarity as to what is required. In this two-tier legislative/ regulatory regime, the issue is the clarity, including coverage, of regulation.

  9. Wise words, Nick. I would also throw into the mix that in the future the FCA should be more focused on regulating products and charges than actual advice. Consumers get far more protection that way. And regulation becomes cheaper and more effective.

    No brainer really !

    • Julian Stevens 20th May 2019 at 9:29 am

      How do you think that product regulation might work in practice? A product that may be entirely suitable for one type of investor (for a few, if properly researched, even those offered by firms that aren’t FCA-authorised) may be entirely UNsuitable for another. Suitability of a product is the key criterion, not the product itself.

      The idea that the FCA (or any other body) could possibly analyse and accord to each and every one of the hundreds, if not thousands, of products out there some sort of quality/risk/complexity/cost rating, not to mention regularly updating such ratings, is completely impractical. it would impose a vast drain on resources.

      Even if it could be done, there would have to be some sort of appeals system for providers who felt that one or more of their products had been accorded an unjustly low rating on one parameter or another. And who would be held to account if the ratings agency accorded a product or its provider a high rating only for either subsequently to go wrong, resulting in investors suffering unanticipated losses?

      On a slightly different note, I’ve just read elsewhere that 16 MP’s have called for Andrew Bailey’s resignation in the wake of the FCA’s failure to avert the latest motorway pile-up, namely LF&C, accusing it of “presiding over the biggest financial scandal in recent years”. That shameful accolade, I think, must surely go to the industrial scale mis-selling of PPI, to which the FSA, under Hector Sants, simply turned a blind eye for years on end. And look what he got ~ a knighthood.

      But, given the decidedly questionable record of Andrew Bailey’s three predecessors, who would take his place? The answer is not yet another CEO. Rather, it must surely be to grant the TSC the powers is clearly needs and wants to impose its will on the FCA in terms of what it shall and shall not prioritise and to force its adherence to the Statutory Code of Practice for Regulators (the original 2007 edition, not the disgustingly bowdlerised 2014 revision to it), principally to regulate in a proportionate and appropriately targeted manner. That should be at the heart of everything the FCA does instead of its present modus operandi whereby it does what ever it pleases without taking a scrap of notice of anything that anyone else thinks or says.

      • Actually it was John Tiner who presided over the PPI shambles, Sants inherited it.

      • Catherine Tompkins 21st May 2019 at 5:43 pm

        I Totally researched LC&F before investing in 2016, transferring a substantial ISA from my bank to them. As ‘regulated by FCA ‘ was a major feature of their marketing, it felt safe to do the transfer, How Wrong was I? My argument with the FCA is that they knew there was something wrong with this company in 2015 and did nothing until January 2019. Who do we trust now?

  10. Karl Hopper-Young 20th May 2019 at 8:05 am

    That’s it in a nutshell. The regulator through the FOS, control how advice is given, and there lies the problem.
    Whatever you do will invariably be interpreted differently from what was actually said.
    There’s no such thing as a robust report or a bullet proof file.
    The FOS determinations demonstrate that.
    The FCA are not meeting their core objectives by bullying the IFA in the playground.
    They’ve had my dinner money and my marbles! Literally
    Great piece Nick. You’re not scared and nor am I. 31 years service

  11. My MP is the reptilian David Gaulke, a studious ladder-climber if ever there was.

    Back in 2011 when shadow treasury minister he evoked that sombre utterance, in respect of the coming RDR, “I will follow the party line”

    Interetsingly he now fails to follow the May party line as it is in his own interest to deviate and enhance his own future prospects.

  12. Nick, I agree completely. I cannot find one facet of regulation that has worked for consumers.

    • Julian Stevens 22nd May 2019 at 12:55 pm

      I think that a higher minimum qualifications benchmark has been a good thing (even if those who struggle with exams only just made the cut, whilst some good advisers sadly couldn’t), as has disclosure of costs and (for most of us) the removal of commissions on investment and pension products. Risk warnings these days are a lot more robust (albeit excessive) and the increased focus on (and proper recording of) suitability over merely flogging a product.

      So the RDR hasn’t been all bad. The real problem, of course, is the virtually total absence of any system of checks and balances over regulatory policies. The FCA does whatever it feels like and anyone who disagrees can go to hell.

      And what of its succession of CEO’s? Howard Davies ~ can’t recall any significant achievements on his part. He got a big bonus though. John Tiner ~ waste of space. Sants ~ what need be said? Wheatley ~ given the order of the boot by Osborne. And now a cross-party committee of 16 MP’s is calling for Bailey to quit. It’s hardly impressive, is it?

  13. Chris Gartside 21st May 2019 at 10:25 am

    Seems every day yet another scam is unveiled in our industry, global communications make regulation nearly impossible. There is an overwhelming need to reinforce the principles of caveat emptor at government level. The public expectation for compensation has to be rebalanced.

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