What with papers on risks to customers from financial incentives (FG13/01) and now a guidance consultation on inducements and conflicts of interest, it seems that we need to have a grown-up conversation about what exactly the regulator is trying to achieve, and why it finds it so hard.
Faced with a new competition objective the FCA needs to work out what “promoting effective competition in the interests of consumers in the markets for regulated financial services” really means.
In a blinding flash of honesty, Christopher Woolard, the director of policy, risk and research for the FCA, in a speech earlier this month opined: “If we are being really honest with ourselves, when faced with a breakdown of either rationality or price efficiency when our models didn’t seem to work, the most frequent regulatory response was to provide yet more information.”
Now how can a regulator which has been in place in one form or another for a quarter of a century have failed to realise that providing more and more information to customers who know little of the intricate world of personal finance is going to be ultimately futile, if not entirely counterproductive?
So the FCA is, we learn, trawling through the old handbook to see where the rules may have led to unintended consequences and had an adverse effect on competition.
We also learn that the FCA is “rolling out competition training” and planning the “recruitment of more staff with competition expertise”.
My mind boggles at what ‘competition training’ looks like: vast cohorts of regulators sent to engage in muddy team building? And surely every human being over the age of around four has ‘competition expertise’ – it is called life.
But more productively, we would be well served by drawing the FCA’s attention to the most egregious examples of rules inhibiting competition.
Let us start with the new capital adequacy regime. The consequences of the rules made (and questioned) for years are only now being realised as firms crunch the numbers. Enforcing reserves of huge levels of capital in firms committed to reducing financial incentives by introducing salaries (a good thing in the regulator’s mind) is a barrier to entry for new firms, a barrier to competition for existing firms and a barrier to corporate investment, recruitment, staff development, and even staying in business at all.
If he wants to understand unintended consequences Mr Woolard would do worse than to start here, and change the rules before they do any more harm.