28 March 2014
Be fair or be fined - the rules of a new era of financial regulation
When George Osborne unveiled plans to shake up the regulation of the financial services sector a few years ago, I have to admit to not being particularly impressed. The Financial Conduct Authority looked similar to the FSA in just about every way - and the move seemed to be little more than political grandstanding.
But a year on since its inception, things feel very different. It may be in the same building, it may have most of the same staff, and it may have almost an identical name to its predecessor - but the FCA's approach is very different.
Martin Wheatley (pictured), the regulator's chief executive, is demonstrating that the FCA intends to identify and stamp out the next financial crises before they occur - ultimately an impossible mission, but one that is leading the FCA to do a lot of work which is long overdue.
Having launched reviews and investigations into dozens of different markets already, next week the regulator will move onto the world of closed life and pension funds (aka Zombie funds) - cracking down on those providers who are ripping off their customers with high charges or unhelpful investment strategies designed to protect the companies' interests and not their clients'.
This is a problem that has been bubbling away for a decade, but which the FSA never bothered to get to grips with. The practices of some Zombie funds - like numerous other problems in the financial services sector - were always deemed to be less of a priority by the FSA than the bombs which were exploding elsewhere in the market.
The FCA, however, has managed to get its head around the fact that dealing with problems early can stop them ballooning into the kind of mess that we've seen with Payment Protection Insurance (PPI) or mortgage endowment mis-selling.
Be good or be gone
For financial services companies, the narrative is starting to become clearer. If you can't put your hand on your heart and say that everything you're doing is in the best interests of your customers, then you better start putting things right. Now. Just about every market failure that I wrote about at Which? is now being investigated by the regulator. And the FCA now has an entire team of ex-journalists seeking out the next scandal - to keep the regulator ahead of the game.
Companies can spare themselves a lot of pain by being honest with themselves and clearing up unfair terms and practices now. It may seem like an expensive job in the short run, but the consequences of doing nothing will be much greater. The FCA is getting braver and bolder with its fines, and we're now entering a world where executive bonuses can even be clawed back for bad practice.
I have some sympathy with companies that claim that the regulator's new hyperactivity is stifling innovation. You can certainly smell the fear in the compliance departments of banks and insurers these days. But I've yet to see the regulator calling companies out for doing something that was in the interests of their customers. There's no need to be overly cautious if you can prove that you have excellent customer outcomes in mind.