Cobb’s Paradox could be another description for the regulation of financial services in the UK today. Essentially it states that we know why projects fail and we know how to prevent their failure, and asks why given this prior knowledge do they still fail.
Thirty-plus years of regulation with five different financial services regulators and the question itself seems to have become unpopular.
A regulator cannot prevent every product or advice failure, but should know enough to prevent most of them if they use what they know in a smarter way.
Firstly, we could begin with what is now known as the ‘Rumsfeld argument’.
“There are known knowns; these are things we know that we know. There are known unknowns; that is to say, there are things that we know we don’t know. But there are also unknown unknowns; there are things we don’t know we don’t know.”
The FCA collects huge amounts of data from firms. Data holds all sorts of interesting opportunities to be explored, and not in the way most would expect. It can take many different forms and regulators are often asked what they do with it all.
The answers may be obtuse but you can be sure that data can be looked at in so many ways to throw up trends, habits, behaviours’, attitudes, etc.
It can be searched and analysed in simple forms; it can be searched and analysed in highly complex ways. So, in our space all this no doubt builds a very detailed picture of advisers and consumers, their attitude to service and risk management.
The FCA correctly requests data from companies in a bid to understand the markets it is tasked with regulating. Financial services companies are of course also obliged under law to provide data to the FCA under certain circumstances.
We need a regulator capable of firstly working out what data it does and doesn’t require in order to, secondly, be able to ‘work’ that data in such a way as to ensure ‘project failure’ is kept to a minimum.
In short: it needs to know more about what it does not know. What we don’t need is a regulator pursuing greater data levels just for the sake of it.
In future the FCA says that the data it collects will be ‘effectively governed and controlled’ and ‘clearly specified’. It said it would put review systems in place to ensure it stopped collecting data from businesses where ‘it no longer meets our needs’.
What all that means is not entirely clear, but to quote another ‘Rumsfeld-ism’: “If you try to please everybody, somebody’s not going to like it.’
Derek Bradley is chief executive of Panacea Adviser.