Regulation and Politics
How can the FCA become smaller if its remit keeps getting bigger?
Wednesday, June 19th, 2013

The Parliamentary Commission on Banking Standards wants a slimmer FCA focusing on the big issues. Here’s the relevant quote.

“A strategic aim of the FCA should be to become a smaller, more focused organisation. The commission recommends the FCA replicate the Bank of England’s stated intention for the PRA to operate at a lower cost than its equivalent part of the FSA, excluding what is required to fund new responsibilities. The FCA should set appropriate timescales for implementation of this recommendation.”

But short of dumping the RDR what exactly, can the FCA do to achieve this focus?

One can look to history of course, to see how focus was lost. In the run up to the banking crisis, I heard countless IFAs say that FSA was looking in the wrong places. The advisers said it was the bigger players and usually the banks where things were going wrong. I suspect a lot of these comments were referring to the industrial scale fast-tracked lending, much of it was about poor bancassurance advice though sometimes about private banking advice too. A few wise advisers probably were referring to the whole show getting out of control.

There is something in this of course, but retail advice hasn’t exactly had a totally clean bill of health. And what would an FSA looking at banks more closely, managed to have stopped what was going on? Would it even have acted given what we now know about its concerns regarding RBS and the failure to act?

One area where IFAs were definitely bang on the money was the treating customers fairly initiative. The Money Debate thinks the whole concept was complete idiocy reducing otherwise intelligent middle ranking regulators to box ticking, sound bite repeating automatons with all the independence of mind of early Blair years New Labour backbenchers.

It is also pretty obvious that the FSA was scared and scarred by, variously, endowments, pension misselling and Equitable. It was guilty of not just fighting the last war, but of fighting it on three fronts.

But you could arguably attach some blame to the fact the government dumped mortgage regulation on its doorstep. The FSA did not want it. It got it with all the accompanying additional calls on management time. And guess what. Now the FCA is being handed regulation of consumer credit. The FCA hasn’t actually said whether it wants or not. But look at all the additional calls on management time.

It’s got fewer IFAs to look after now but rather a lot of RDR detail to consider. Smaller and more focused? The Money Debate doesn’t think the FCA has got a hope of becoming that any time soon.
Would an independent Scotland accept that regulated advice is really only for the middle classes?
Wednesday, May 22nd, 2013

It was certainly an interesting tack when the Treasury argued against Scottish independence with of all things the compensation scheme and the pension protection fund argument. Actually both hold water to an extent, but they also reveal that disentangling a four hundred year union between two of the most modern and sophisticated economic and political systems in the world isn’t going to be all that easy.

Of course the Treasury is boxing clever on this. It also says Scotland would have to put in a complex system of financial regulation. But as we have asked before, in a smaller market, where it is might arguably be easier to supervise would Scotland adopt such a strong pro-consumerist line or such a hard line on remuneration? A Scottish government would not be anti-consumer. But it might have a different interpretation about where that line is drawn when it comes to encouraging saving particularly if it could keep a closer eye on what was happening in the market. It also might have a different view of restricting full advice to better off parts of the population if it looked at the issue with a more Scottish and more social democratic eye.
If interest only mortgage claims succeed, we might as well set up a zero fail regulatory regime
Friday, May 10th, 2013

A little press release from a lawyer suggests that the FCA paper on interest mortgages could see class actions against lenders and advisers. This is based on the finding that 13 per cent of borrowers say they didn’t understand the terms of the mortgage.

Here is the pertinent quote.

Andy Millmore, a partner at Harbottle & Lewis (  says: “What is significant is that this leads to the question of why they did not understand, and whether they were mis-sold, with the strong possibility that many will believe that they were”.

“The problem in the past has been the cost of taking lenders and intermediaries to court. But since last month, solicitors can undertake work on a true contingency basis, sharing in recoveries, which makes the prospect of legal action more likely in my view if groups of borrowers were affected in the same circumstances.”

“This report suggests that interest-only loans could represent a similar issue to payment protection mis-selling, with the potential to secure very significant pay-outs.”

“In turn that could lead to criticisms of claims companies and lawyers if it is seen as a further example of the excesses of the compensation culture.”

Is this a bit of a legal hop, skip and a jump? (Watch out in case the old horse-hair syrup falls off!)

The FCA paper said 13 per cent did not understand that they would have to pay off a capital sum at the point of sale and another 6 per cent were unsure. However, only 2.5 per cent were both not aware at point of sale and currently do not have a repayment strategy in place.

So the borrowers found out somehow. Perhaps that world famous bloke down the Dog and Duck, who also reentered British political debate this week, offered the relevant advice.

Of course, there is also talk that alongside class actions, claims chasers are also sharpening their claims chasing knives or at least considering changing the message on their ‘orrible little automatic dialing machines.

But one thing to watch out for is whether after a campaign of class actions and people being prompted to (mis?)remember misselling, the numbers who don’t think they understood jump significantly higher.

And if they do what are we to make of it?

If this one gets up a head of steam and lenders and advisers start having to pay out, the Money Debate suggests we would be getting near to a zero fail regime whatever the regulator says is the case.

P.S. Been a little remiss about this. But thanks very much to all who nominated the Money Debate for financial blog of the year at the Headline Money awards this year. Our staff were unfortunately all struck down with a bug so couldn’t accept the kind offer of seat at the awards from the AIC this year. (We are not sure how all twenty of us we’re going to fit on one seat) Anyway in the 20th biggest shock of the night, we didn’t win this year with Investors Chronicle coming second and the Telegraph coming first. Congratulations media leviathans! But remember social media tankers find it very hard to change course. (Nope, we’re not sure what that means either.) However we’re feeling better and there’s always next year! (cue megalomaniac laughter).