OpinionApr 24 2014

Fairly Clueless Actually: The backlash begins

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The Financial Conduct Authority’s recent one-year anniversary seemed to coincide with the end of its honeymoon period.

For most of its first year, the regulator was broadly welcomed, attracting plaudits for a range of values which it had not really had time to demonstrate.

It was praised for its proactivity in preventing problems rather than just punishing them, despite the fact there had hardly been time since its inception for any significant problems to develop. And when it fell upon the FCA to punish any sins that had been committed before its existence, it was applauded for its ‘teeth’ in doing so.

Everyone welcomed the FCA. Everyone who came under its auspices seemed to be queuing up to state their admiration and outline what a difference the new regulator had made.

In truth the FCA was riding a wave of admiration inspired by little more than its not being the FSA; most in the industry asked nothing more of it.

The FSA was so despised that, had it been replaced with a panel made up of Abu Hamza, Jimmy Savile and Piers Morgan, they would have been welcomed

Its predecessor had been so universally despised that, had it been replaced with a panel made up of Abu Hamza, Jimmy Savile and Piers Morgan, they would probably have been welcomed as a breath of fresh air and heralded as a fair-minded cornerstone of an industry bouncing back to flourish after the draconian regulatory nightmare we had all had to endure for the past 17 years.

Nobody dwelt on the past, instead choosing to focus on the new order and what a good job it was doing.

But then, early this year, the crown started to slip. Having announced a review of the UK annuities market soon after coming into being last spring (one of the acts, which brought it further adulation incidentally: “annuities are a mess, something needs to be done” etc…) the regulator revealed the results early this year. The inquiry’s key finding? Annuities are a mess. The recommended fix? We need an inquiry.

Having used an inquiry into an acknowledged mess to discover it was a mess and would need another inquiry, one or two started to question whether the FCA was really the omniscient, omnipotent force that legend had already built up.

Further chinks appeared as annuities generally seemed to be becoming the FCA’s Achilles heel. In March, at a time when the watchdog should have been preparing to bask in the glory of a successfully implemented Mortgage Market Review, George Osborne announced his overhaul of the at-retirement marketplace. The regulator’s hastily cobbled together response made it clear it had had no prior warning of the announcement. It was obviously unprepared and left looking peripheral and irrelevant.

To be fair none of us saw Osborne’s announcement coming. But while consumers, providers and even journalists could forgivably be left out of the loop in preparing that bombshell, it seemed unthinkable that the chancellor would not brief the regulator whose job it would be to oversee the changes, especially when that regulator had just a few weeks before announced an inquiry into a product that now may not exist.

If the watchdog had begun to slip from the chancellor’s good books, it sealed its fate just a week later. When some clumsy dealing with the press compounded the nosedive of insurers’ stock prices prompted by the Budget, George Osborne was open in his criticism of how the watchdog had behaved. The final ignominy was that the FCA became the subject – rather than the instigator – of an inquiry as an independent review into its own conduct was announced.

Suddenly the backlash was in full swing and the FCA was fair game; in a matter of months it had gone from feted to fetid.

It is not an easy job being a regulator. There is only so much you can regulate to prevent the wrongdoers – after all, locks only keep out honest people – and the honest people on whom your regulation will inevitably impinge are bound to resent you.

Financial services is a particularly tricky brief too, dealing with products where consumers’ collective understanding is often inversely proportionate to the impact those products can have on their lives – for good and bad.

Ultimately we probably all expected too much and got too excited about a ‘new’ regulator. We had ideas of an all-powerful force sweeping away the evils of the industry along with the incompetence of its predecessor.

Sadly, in reality, the ‘new’ regulator is just the same people in the same office with the same failings. All that is new is the sign above the door and the stationery.