OpinionAug 11 2014

More regulation is the future

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A common complaint we hear from our readers - and indeed that echoes across the financial services trade press - is that the industry is over regulated.

I find it hard to disagree: only last week we had a fresh volley from the Financial Conduct Authority dictating how firms might have to use social media in order to ensure compliance with financial promotions rules designed for a different age.

Last week, HSBC chairman Douglas Flint, one of the few still standing in the sector in the wake of the seismic scandals of recent years, spoke out publicly on the back of poor results for the banking group, warning of a growing ‘risk aversion’ among staff in the face of increasingly retrospective regulatory intervention.

And it is not just something effecting companies: individuals too are now subject to a tax authority with ever more pervasive powers to recover money from bank accounts in advance of any hearing to decide on the merits of a given claim.

A story in FT Weekend on Saturday also reported on a toughening of rules for non-doms, who will no longer be able to use money held overseas to borrow money in the UK tax free.

Another from the Daily Telegraph doing the rounds today reveals the tax watchdog is even consulting on plans to take inheritance tax before a saver’s death where it believes a trust is being used to avoid paying tax rightfully owed.

All of this has prompted a backlash from many professional bodies and the press - just this weekend both the Times on Saturday and its sister paper the Sunday Times carried negative pieces citing heavy handedness and high costs. All to no avail.

Why not is perhaps also evident in the weekend papers, which all carried the news that Royal Bank of Scotland has closed its controversial Global Restructuring Group division following the resignation of its boss, Derek Sach.

GLG was the group accused in a highly critical report by government adviser Lawrence Tomlinson of shutting down viable businesses that owed the bank money in order to profit from the sale of assets. It has always denied the accusations, but whether traduced or otherwise its reputation remained tarnished.

It is just the latest stain: banking sector avarice is blamed for the financial crisis; its traders have been shown to have manipulated global benchmarks, including indefensibly at the expense of the taxpayer; some banks have even been accused of turning a blind eye to money laundering by terrorists and rogue states.

Elsewhere, between corporations and individuals with the money to pay for the best ‘advice’, tens of billions of pounds of goes uncollected each year. All the while benefits are being cut for millions to pay bills left outstanding from the boom years.

Ordinary voters have no truck with any of this, and no sympathy for complaints. More regulation, more red tape, more powers, all win the hearts and minds of the angry many, which perhaps explains the polemic divergence in rhetoric from the main parties in the lead up to next year’s election.

What is the solution? It’s a cliche, but it is about restoring trust. One story in the papers over the weekend shows the way.

Following reports of an investigation into legacy pension fees by the regulator, and the taking up of one case in particular by the Daily Telegraph over a saver in a Skandia scheme who had lost almost all interest earned over 17 years in charges and faced paying a further 40 per cent to transfer out, the same paper has reported on a reprieve that could set an important precedent.

Skandia has now said it will pay back most of the fees - increasing the member’s pot from £11,500 to £29,200. It will still charge a 33 per cent exit fee if the individual, who lives in America, transfers to his ‘401k’ scheme, but this marks a major concession nonetheless.

Last week we highlighted reports of savers being trapped in pensions that will not facilitate new pension freedoms coming into force next April by exorbitant exit fees.

Similar moves to reduce the onerous cost of transferring would be a welcome sign that these companies take seriously their responsibility to savers - and send a sign to regulators that we don’t always need new rules to achieve a positive result for customers.