Panacea comment for Financial Advisers and Paraplanners
13 Feb 2017
Compliance is an important part of the whole world of financial services and indeed many other worlds of business and governments.
In the world of financial services regulatory compliance “describes the goal that organisations aspire to achieve in their efforts to ensure that they are aware of and take steps to comply with relevant laws, policies, and regulations.”
Regulated firms must follow FCA rules. The rules it would seem are clear (to the author/s) but the interpretation and purpose of them at times makes little sense.
A book, published in 2016 by the City University of London called the ‘Stupidity Paradox’ investigated common sense in decision-making.
Professor André Spicer’s research included input from management consultancies, banks, engineering firms, pharmaceutical companies, universities and schools.
The ‘outcomes’ of investigations into the ‘Stupidity Paradox’ revealed many examples of when common sense decisions are simply ignored.
- “Executives who more interested in impressive power point shows than systematic analysis.
- Companies ran leadership development initiatives which would not be out of place in a new age commune.
- Technology firms that were more interested in keeping a positive tone than addressing real problems.
- Marketing executives who were obsessed with branding when all that counted was the price.
- Corporations that would throw millions into ‘change exercises’ and then, when they failed, do exactly the same thing again and again
I just love the last one.
Professor Spicer’s concludes by asking, “Why could such organisations, employing so many people with high IQs and impressive qualifications do so many stupid things”.
I am reminded of the definition of a camel. It being a horse designed by committee.
I have worked since the early 80’s in the industry thought six different regulators- NASDIM, LAUTRO, FIMBRA, PIA, FSA and FCA. The average lifespan of a regulatory body being some six years.
With the exception of the FSA transition, rulebooks, even staffing, for the predecessor bodies have been subject to rewrite and new hire, not a roll over. The FCA transition was a re-skin.
What does ring loud and clear is that regulators do not, in the most part, seem to learn from past mistakes. Not only are ‘learnings missing, they more often than not refuse to accept responsibility or blame for past mistakes.
The FCA is now approaching four years old. So, in theory only another two to three years to go until yet another metamorphosis occurs. In that time it has seen two chief executives and a significant turnover of very senior staff embarking on a journey working for the firms they used to regulate.
Regulation is an industry. The thousands of pages in the FCA manual require firms in turn to employ thousands of people with high IQs and impressive qualifications to interpret the rules and ensure that their business implements them to the letter.
FCA research from 2015 found that 88% of large firms and 44% of small firms increased the amount of time and money they spent on compliance and the cost of regulation, according to New City Agenda is some £1.2 billion.
But, and here is the big BUT. The finer interpretation of some rules would suggest that rather like in the Italian Highway Code, red lights are a suggestion, some rules make no sense in their implication.
We would love to know what examples you have of the Stupidity Paradox in financial services regulation today?
The Stupidity Paradox: The Power and Pitfalls of Functional Stupidity at Work (Profile Books), by Mats Alvesson and André Spicer.
Mats Alvesson is Professor of Business Administration at Lund University and a Visiting Professor at Cass Business School.