Regulation advice and guidance come at a cost as hopes of quicker and more efficient action in a new culture look to have been dashed.
With certain world leaders shifting societies backwards, it can at times feel like we have a bleak future ahead. I wonder if our regulator is moving the industry in a similarly ominous direction.
When the FSA split to become the FCA and PRA in 2013, we were promised the new regulator would be different. Quicker regulatory action on misselling scandals, better forward-looking supervisory work and less time spent ‘in trench warfare’ with firms’ lawyers.
At the time, the Treasury select committee had said there was a “much-needed fundamental shake-up of regulation” and that the regulator must “develop a markedly better culture than that of the legacy FSA”.
Fast forward five years and £30m has been paid out by mortgage brokers because of one firm’s misselling and there is an unwillingness to issue regulatory guidance for fear of judicial review.
It seems the regulator is unphased. Despite the Davis inquiry in 2014 and repeated concerns from the statutory panels and Treasury select committee, there is still an unnecessary focus on a communications strategy and public relations.
More consultations are done purely to comply with a legal obligation rather than a willingness to consider feedback. And they are now being issued with a misleading spin, so the regulator can justify its decisions.
For example, the recent paper on a global sandbox was the first time this had been consulted publicly, despite the FCA claiming it had done so earlier this year – thus mis-labelling closed discussions it held with innovative firms.
The positive feedback from these selected businesses has been used to form the basis of why international firms should receive one-to-one regulatory support to become authorised in the UK.
It is unusual the FCA did not publish a cost benefit analysis as part of this consultation; a further concern about its direction of travel. Setting out estimated costs and how these will be allocated is a fundamental part of being a transparent regulator. If the approach to the current sandbox is anything to go by, we will see the global sandbox also being marketed as ‘free’despite the cross-subsidisation of costs borne by regulated firms.
I do not think that the FCA should discourage innovation. In the digital age we should expect technology to come to the fore. But rather than objectively look at how it can both benefit and disadvantage customers, particularly those who are vulnerable, we have a regulator that appears over-excited by tech and its advocates.
As a result, it has lost perspective of its purpose and who funds it. The attention and favourable treatment given to unregulated firms means we are moving to an anti-competitive market against established firms.
All firms should see tech as an opportunity rather than a competitor and consider the need to adapt in order to continue to be successful. But this should not be within a regulatory landscape that differs depending on whether a firm is authorised or new.
Since the FCA moved to a ‘flexible’ and ‘fixed portfolio’ approach to supervision, the majority of firms no longer have access to a supervisor. But the FCA does provide a dedicated contact to ‘innovative’ firms for support and specific feedback on its proposition.
Even though many of these firms do not contribute to the regulatory bill.
The Mortgages Market Study is also being carried out with a rose-tinted view of tech. It is toying with the idea of watering down advice because some new entrants have complained that regulation makes it difficult for them to develop an innovative model. But what has been missed is that allowing all online transactions to be carried out on an execution-only basis will increase the risk of consumer detriment, with the Financial Ombudsman Service and Financial Services Compensation Scheme unable to provide redress.
Three years ago, the late former FCA director Linda Woodall said that loosening regulation to encourage new players to offer advice “is not the right way forward” and “what is important is that advice is of the right quality to help people make appropriate choices”. This would not appear to be a widely held view.
My hope is to have a transparent, collaborative and inward-looking regulator with effective authorisation, supervision and enforcement. But this cannot be done until there is a fundamental change in its culture and a shift in priorities. Otherwise, I fear that we will see a regulator focused on protecting its reputation be distracted by tech and ultimately lose sight of market and consumer issues.
Aileen Lees is head of policy at Ami