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