28th February 2012

Paradox - Common sense in regulation?

Regulation is a paradox in that it means to be absolute, and yet is relative in that it somehow always goes beyond itself and yet never escapes itself.

The reasoned words of Tom Baigrie in his MM article should strike a chord for all in the industry.

He says: “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.”

Tom is right on the button when he says: “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.”

Once again, the regulators code ignored when it is unwelcomingly helpful.

Being old enough to remember the start of the ‘machine’ with the likes of NASDIM, FIMBRA, PIA and now FSA one could be forgiven for cynically seeing the FCA as another no expenses spared attempt at creating a safe zone for society.

Consumers must be protected but what constitutes protection and how far should it extend? The public should not need protecting from themselves but society today seems hell bent on doing just that.

Regulation is an industry and it encroaches on our daily lives, some with good reason, some with none at all. When we see headlines like “Firemen ordered not to rescue drowning man for health and safety reasons- the water was more than ankle deep” I think we can get an idea of a regulation gone mad world.

It seems like common sense rules or laws are either ignored or not implemented if they do not suit, such as in financial services having the regulator regulating the product or in general terms having the public ignore speeding signs, dumping litter, engaging in anti-social behaviour, mobile phone use while driving, not wearing a seatbelt or a helmet while riding your motorbike - the list is endless.

Regulation has the potential to rule out the element of self-determination in life that may have an element of detriment attached. Why? Because in the world of regulation it means that despite you doing something stupid, knowing it to be really stupid, someone else can be blamed and as we all know, where there is blame there is a claim.

It is a paradox that every regulator has climbed on the ladder of consumer betterment. Immediately on attaining power without limitation each regulator has suppressed all views that do not agree with their own and created consumer detriment as an unintended consequence of the process.

Tom’s suggestion is one of simple clarity. Stop the bad guys, after all there is so much data that the FSA must have to allow the forensically inclined Canary Wharf minds to have a field day. And frankly, if the bad guys continue to win it is the regulator who should be rightly blamed, possibly because the complicated regulation they have created leaves nice little cracks for the bad guys to get through.

The FSA response to a pragmatic approach this week has been:

• FSA forces IFAs to change their firm's names
• RDR compliance costs could leap by extra £460m
• FSA says IFAs must advise on all retail investments
• IFAs can use third parties to research market
• Regulator rules multiple recommendations are restricted

One thing is for sure, in life, (please excuse the phrase) ‘shite’ happens! And no matter how hard you try to prevent it, somebody always steps in it when they are not looking when they should be. Indeed that is part of the problem in the financial services world because regulation is putting up so many signs advising where you can and cannot ‘shite’ that they have created a Boulevard of Dreams that ends up covered in the stuff and none of us are likely to escape with a clean pair of heals- so to speak!

FSA/FCA, RDR, Panacea Comment