Compliance and the Stupidity Paradox

Panacea comment for Financial Advisers and Paraplanners

13 Feb 2017

Compliance and the Stupidity Paradox

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.

The rules are well defined, as we all know, in the FCA handbook. For the avoidance of any doubt, the regulator has even provided an introductory guide.

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.

Examples included: 

  • “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.

André Spicer is Professor of Organisational Behaviour at Cass Business School, City University London.

Mats Alvesson is Professor of Business Administration at Lund University and a Visiting Professor at Cass Business School.

What you have become is the price you paid to get what you used to want

3 Feb 2017

What you have become is the price you paid to get what you used to want

I have borrowed for inspiration from a quote from Mignon McLaughlin who wrote ‘The Neurotic’s Notebook 1960’ as I think it sums up very well where we are in the UK right now both in a society sense and a financial services sense.

I am a baby boomer and not a day passes with a moment of stark reality hitting me full on around the perception of millennials that society is failing them.

Where shall I start?

Well being born in 1951, I have seen quite a lot. Not as much as some but more than most around lifestyle changes and aspirations from the ‘50’s and ’60’s through until today.

In the post war era that I grew up in, the idea of family, friends and neighbours being victims of poverty, exposed to dangers various at every turn just did not exist.

The Thames froze. We had terrible smogs caused by coal fires, houses did not have central heating or double-glazing, toilets were outside the house, Bronco was the paper of choice. We would wake up from a duvet-less sleep in a house with windows frozen on the inside as well as the outside and after being given breakfast it was off to school, with school friends living nearby on foot.

We played in the street, unthreatened. we knew our neighbours, burger alarms were only found on banks.

Buses and trams represented the public transport offering. Milk was delivered by horse and cart, supermarkets did not exist, and food was rationed until 1954.

Homes that had a telephone would often share the line with someone else. And black and white televisions were tiny and for the rich.

Police were on the ‘beat’ walking the streets with clean white shirts and a very big hat, the Fire Brigade actually put out fires and ambulances took people (who actually needed to be there) to a clean and very efficient hospital casualty (not A&E) department. The call for emergency help was often made on a shared phone line or by your family doctor, not a GP, if they could not help.

If you were unemployed, you went to your local ‘Labour Exchange’ and got very little money to help in times of hardship. The credit card did not exist.

And as for financial advice, the ‘Man from the Pru’ was the ‘come to you’ solution. If you were a person of substance, your bank manager would assist, resplendent in attire and tattoo free.

Sixty five years on is this the time for a pause to reflect on whether life is better or worse in 2017 than it was in the 1950’s?