Regulation, will we ever get it right?

mansleepingI had the great fortune to sell my IFA practice 10 years ago, a driver for taking the plunge was that having worked under the ‘control’ of 4 different regulatory regimes- NASDIM, FIMBRA, PIA and FSA, the prospect of never seeing a balance of common sense and fairness painted a very bleak future.

The jury may still be out in that regard, but I think we are at the stage where the Judge may be directing the Jury that a majority decision would suffice.

I am not normally driven to negativity, cynisim maybe, and while I do see an absolute need to have regulation of financial services, it seems to me that wherever there is regulation, chaos and extreme cost is the outcome with blame being laid at the door of the weakest.

Some key facts to digest:

  • Regulation is poorly thought out in just about every industry
  • It is reactionary rather than pro-active
  • It is not always retrospective, although in financial services it seems to be an exception
  • Nobody ever listens to the voice of experience
  • Nobody ever learns from past failings
  • Nobody in regulation admits failure
  • Nobody in regulation takes the blame
  • Everyone in regulation benefits from ‘learnings’ and earnings
  • Regulatory failure is rewarded not punished
  • Regulation is an industry, it is hermaphroditic, capable of self procreation and without something to bash it would have no purpose. As Keith Richards (Rolling Stone not PFS) once said “In the business of crime there’s two people involved, and that’s the criminal and the cops. It’s in both their interests to keep crime a business, otherwise they’re both out of a job.”


Regulation should not be pursued at any cost and in such a way, applied like a tattoo only to be regretted when the effect of the alcoholic induced stupor that fuelled its creation has gone away. The NHS is an example of regulation on ‘acid’.

Has the consumer benefited? Many may say no. Access to financial advice for the masses has been exterminated. Even if it was freely available, there is insufficient capacity to service any more than around 10% of the population based on the recent Heath Report and the FAMR will not correct that imbalance as was intended.

In 2009 the great and the good expressed concerns about the impact of RDR and how it will disenfranchise consumers, here but just a few to prove my “Nobody ever listens to the voice of experience” comment

  • Otto Thoresen – CEO ABI, then of Aegon: “The RDR is only helping wealthy customers”
  • AXA April 2009: “We will lobby the FSA to make sure the RDR does not mean less are able to access advice”
  • Institute of Financial Services: “RDR will impair financial advice before improving it”
  • Alasdair Buchanan Scottish Life November 2009: “Sales advice is a real cop out and extremely confusing to investors”
  • Stephen Gay – Aviva June 2009: “The regulator has failed to consider the danger of adviser charging limiting access to advice for those on lower incomes”
  • Lord Lipsey: “Consumers in the middle (not high net worth or money guidance fodder) to be sold products by banks under the contradiction that is sales advice”
  • Walter Merricks former Chief Ombudsman: “I think it would be unwise to count on the assumption that complaints from the retail investment world are suddenly going to go down as a result (of the RDR)”
  • Deutsch Bank report August 2009: “There has been industry talk of 30% or even 50% of IFAs exiting the industry post 2012, which is not impossible”
  • Paul Selly HBOS: “Bancassurers set to benefit”
  • Richard Howells Director Zurich Life June 2009: “The big question mark is still around what benefit it will have for the ultimate consumer. I am still not convinced that all of these changes, when you sit down with a consumer and explain them, actually give rise to a consumer benefit that I can really hang my hat on.”
  • Martin Lewis Money Saving Expert June 2009: “There’s a worrying possibility that the FSA is about to kill off independent financial advice in the UK for all but the wealthy. I do hope I’m wrong. I’m not convinced most people will want to pay for advice. The commission route has the advantage that you don’t pay a fee each and every time you want information; you can go without the worry of laying out cash. What I find most galling though is that bank-based advisers – those primarily responsible for PPI miss-selling, endowment miss-selling, investment miss-selling and generally poor advice all round are still to be allowed to be remunerated based on the number of sales.”
  • Janet Walford OBE, Editor Money Management Sept 2009: “I am not paranoid enough to believe that the FSA has a hidden agenda to do away with small IFAs, but the law of unintended consequences may well mean that this will be the result. This is especially the case when set alongside the myriad of other proposals that are costing some £430 million to set up, with ongoing fees of £40 million pa thereafter, a mind boggling amount of cash.
  • Peter Hamilton barrister, Source: Money Management Oct 2009, Scrapping the FSA by Marie Jennings MBE: “The Financial Services and Markets Act does not permit the FSA to cancel an authorisation simply because the FSA has changed its views on what the appropriate qualifications should be…. It is one thing to impose new rules for new entrants to the IFA profession, it is quite another thing to disqualify someone who is already qualified.”
  • David Hazelton of Tax Incentivised Savings Association (TISA) 30/10/09: The RDR could be detrimental to consumers both in terms of higher product charges and an increase in the cost of advice, warns the Tax Incentivised Savings Association (TISA). Implementation costs for the RDR are being “seriously underestimated” and product charges will consequently have to be raised.
  • Robert Kerr, head of retail distribution development at Scottish Widows says: The RDR could have the unintended consequence of “disenfranchising” the majority of consumers from financial advice. “Our key concern is the RDR proposals will act to drive advice upmarket, with financial advice becoming the preserve of the wealthy leaving mass-market consumers un-served,”
  • Nigel Waterson MP when Shadow pensions minister: “While no-one can object to raising the standards of training and competence, should an emphasis on exams take precedence over on-the-job training and experience?

Fines are at record highs for the same bad behaviour from the same suspects, regulatory costs are at an all time high, huge FSCS levies continue to hit ‘small businesses’ when least expected, politicians have no control of those they leglislate to regulate, those employed in financial services regulation have increased, those employed in the financial services sector they regulate have decreased.

The problem with regulation in 2016 is that you cannot regulate for lack of common sense, yet that is what we keep trying to do. Caveat emptor has gone.

We have lost the use of that in-built gene of common sense when looking at constructing and applying regulation.. Its loss went along with map reading skills, crossing the road after looking both ways, not talking to strangers, proficient cycling, spelling ability, simple mental arithmetic skills and very many more.

The world has truly gone mad, or at least it has in UKplc’s regulation section.

We have a society that is now readily and speedily offended on somebody else part for just about everything that simply should not matter as much as it does.

We have borders that are not fit for purpose, we have an NHS in meltdown because the service is now aspiration and expectation based, rather than focusing on the basics of it’s original 1948 founding principles (comprehensiveness, within available resources) and a country controlled not by UK based elected politicians but by unelected civil servants, quangos, eurocrats and regulators.

To top that we now have ‘Brexit’.

To borrow that famous Bob Monkhouse quote “ When I said that the proposed RDR regulation would not work, everybody laughed. Well they’re not laughing now.

Longstop matters, dual standards and South Thanet

Longstop matters, dual standards and South Thanet

The campaign to see that longstop protection should be re-instated for financial advisers seems to have been kicked into the long grass once again, this time by way of the actions and resolve of the FAMR and the FCA.

Had longstop protection been restored, IFAs would have seen any claim against them becoming unenforceable after 15 years had elapsed. This protection was enshrined for all within the Limitations Act 1980 and was removed for financial advisers by the government under FSMA 2000 legislation statutory instruments.

The big supporting ‘remove’ argument for consumers was, and still is, that it could take very many years to realise that financial advice received could be inappropriate, for instance mortgage or pension advice.

What follows regarding dual standards will make advisers very cross indeed.

We hear that Tory party officials tried to block Kent police’s enquiry into general election party overspending (election fraud?) by engaging the services of one very expensive QC, James Laddie at Matrix Chambers.

The argument put forward by Mr. Laddie was that the time limit for any overspend prosecutions had expired. That limit, in this electoral case, is just 12 months. He failed to mention to the court the delay in providing information to Kent police by the party contributed to that delay.

Luckily, the judge was wise. Upon being told of Conservative party attempts to block Kent Police from extending their probe, Judge Justin Barron said in granting the extension ‘The combination of circumstances before me is wholly exceptional and goes far beyond the usual circumstances that would exist in a typical case where election expenses are being investigated.’

General election campaigns allow a spend between £10,000 and £16,000 per candidate, depending on the size of their constituency population.

General elections set an elected government on course for a fixed term of 5 years. The balance of power in the 2015 election was determined, in particular, within marginal constituency seats such as South Thanet. Those very marginals delivered a Tory majority of just 12 seats.

In May, seven police forces launched investigations into Tory MPs for possible election fraud, acting on evidence revealed by Channel 4 News that showed almost £200,000 had been spent in supporting Tory candidates that should have been declared at a local level.

The outcome, had it been declared in each constituency, would have blasted those candidates way beyond their local expense limit, in fact it could have doubled that amount.

Police are also investigating:

  • Amanda Milling, for Cannock Chase
  • Michael Ellis for Northampton North
  • Stuart Andrew for Pudsey, Horsforth & Aireborough
  • David Nuttall for Bury North
  • North Cornwall for Scott Mann
  • George Eustace for Cambourne and Redruth
  • Kevin Foster for Torbay
  • Oliver Colville for Plymouth Sutton and Devenport;
  • Graham Evans for Weaver Vale.

Gloucestershire Police have not yet not confirmed whether they will be looking at Cheltenham MP Alex Chalk or Stroud MP Neil Carmichael.

It would be fair to say that there have never been circumstances such as this where an investigation into potential electoral crime was so large or so complex that it created the need to apply for an extension of the one-year time limit.

If the ‘boys in blue’ do decide to look at all these constituencies and the outcome is that the Tory party was found guilty of electoral crime on such an industrial scale, the balance of power could shift by way of a re-run of the elections in those constituencies’.

Indeed, in the event of a series of successful prosecutions, the country could have been governed by an illegal entity.

For Nigel Farage, the massive resource thrown at South Thanet probably destroyed his election prospects, the desired Tory outcome. He came second with 27% swing toward UKIP, only 2,812 votes behind the Tory winner

So, to summarise:

  • the Tories are claiming a longstop defence of 12 months.
  • IFA longstop aspirations were 15 years
  • If the constituency overspends results being investigated went against the Tory party, we may have had a hung parliament or an ‘Ed’ led Labour government.

This ‘Orwellian Animal Farm’ application of legal process shows there truly is something rotten in UK politics.

The financial adviser community may wish to consider again the ‘longstop remain’ argument put forward over many years by successive governments, and the most recent FAMR view on the matter as noted above and then apply it to this shameful political attempt to scupper a police investigation into electoral shenanigans.

We could surmise, from applying FCA and FAMR logic, that it could take very many years for an electorate to realise that government policy and law making could be based upon the outcome of electoral fraud.

And worse, the country could have decided to ‘Brexin’ or ‘Brexout’ all because of a referendum called by an illegitimate parliament.

And who would compensate for the very long-term ‘electoral detriment’ that overspend caused?

Just a thought.