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Has the financial services industry brought regulation upon itself?

Our experts disagree, with one seeing regulation as inevitable and a good thing, and the other believing things were fine the way they were

Bob Sturges is director of communications at Money PartnersThis question implies that regulation is undesirable. But to regulate is simply to control and control is necessary and desirable where users of services or products are exposed to risk.

Financial services providers have long recognised that some products carry an element of risk. They have sought to mitigate this in a variety of ways including self-regulation. But self-regulation only works well in certain conditions such as those found in the mortgage sector prior to deregulation in the 1980s. At the time, building societies operated what was effectively a cartel which limited choice and supply of mortgages to customers able to satisfy stringent criteria. In such conditions, there was little need for even light- handed regulation.

But successful societies and economies change, as ours did over the next two decades. The financial services industry was transformed. In particular, the sub-prime sector opened up the lending market. But this was predicated on lending to individuals thought to be unsuitable by mainstream lenders. And while most sub-prime customers benefited from this liberal approach it can’t be denied that mistakes and abuses occurred. Consequently the Office of Fair Trading introduced formal guidelines for sub-prime lenders and paved the way for statutory regulation.

It is hard to see how or why this could have been avoided. Despite the best efforts of organisations such as the Mortgage Code Compliance Board self-regulation was unlikely to have succeeded in an environment that saw competition intensify and products become more complex.

The same holds true for the investment and pensions sectors, both of which have seen scandals. While regulation has brought some pain and cost, I doubt anyone interested in the long-term success of the industry considers it undesirable.

Roy New is a sole brokerWhat a load of old rubbish. The mortgage industry was one of the best run in the financial market well before the Financial Services Authority got involved so I would vehemently disagree with anyone that argues the industry was collectively responsible for attracting and requiring regulation.

The Mortgage Code Compliance Board was excellent. There was nothing wrong with it or the service it provided. The reality is that there are cowboys in all markets – whether they call themselves professionals or are regulated, you can’t get away from them.

To be fair, the Financial Services Authority has gone a long way to getting rid of them but there are still cowboys in the industry.

To my mind, the Council of Mortgage Lenders in conjunction with the MCCB were responsible for a well run ship. You can tell how well run it was by the fact that most of the staff of the latter organisation are now working for the FSA.

Yes, there were dark days in the 1980s when interest rates rocketed, but there are dark days in all walks of life. Back then you presented clients with two figures and they always went for the endowment rather than the purchase mortgage as it was generally 200 cheaper.

The fact that the industry now has to put up with endowment ambulance-chasers creates bad feeling among brokers. Everyone promoted endowments because they were the cheapest option at the time. Fortunately the FSA seems to have taken a sensible approach and has said that it will not judge advisers retrospectively.

I like being registered with the FSA and being a professional, but to say that we as an industry deserve it is incorrect.


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