Investment: FSA's Efforts to Protect Investors Could Turn out to Be Self-Defeating ; `Who Is Asking the Really Hard Questions about the Cost/benefit Analysis of This Regulating Machinery?'
Davis, Jonathan, The Independent (London, England)
Is this a good time to enter a mild note of caution about the unstinting efforts of the Financial Services Authority (FSA) to eradicate financial misdoing wherever they can find it (which appears to be almost everywhere)? I suspect that the answer is probably not. As many commentators have observed before, there is rarely a good time to try to talk common sense about the issue of regulation.
There are only two sets of circumstances that merit debate about the role of the regulator, headed by Sir Howard Davies. One is when times are good; in which case everybody is too busy enjoying the fruits of those good times to be really interested in what regulation can do. The other is when times are bad; in which case everyone is so busy trying to find someone to blame for their predicament that common sense and natural justice tend to go right out of the window.
My sense is that we badly need someone to stand up and say that the present trend towards finding regulatory solutions to every conceivable misfortune investors endure is a game that can ultimately only be self-defeating. The culture of regulatory solution needs to be seen for what it is, namely a zero sum game whose best outcome is a self- defeating attempt to close the stable door after the horse has bolted.
Two pertinent examples spring to mind. One is the pensions mis- selling review, now happily at last close to completion after seven years. The regulators are proudly making much of having so far secured pounds 14bn of compensation for people wrongly sold personal pensions. This is a large sum.
But given that it is spread across such a huge swath of the population, in per capita terms it does not amount to anything like as impressive a figure as it first seems. The average settlement, I am told, comes to little more than pounds 1,000 per head, a sum that would entitle you at present annuity rates to something like pounds 40 a year in income. In most cases, the sums involved are frankly neither here nor there in terms of the overall pension needs of the population. Against that has to be set the huge and (as far as I am aware) unquantified costs of researching and settling all these cases, an exercise in administrative paper-chasing rarely, if ever, exceeded in scope. I would be astonished if the net benefit to the nation from sorting out this appalling mess is anything other than a very small figure (though as taxpayers we are all beneficiaries of the previous Tory Government's decision to try to opt everyone out of their Serps entitlements).
Then we need to look at the case of the with-profits industry. There is no doubt the failings of the concept will become the scapegoat of the year as far as financial services is concerned. The FSA has already had its say at condemning the insurance companies that dominate the business. In the next few weeks, we will have the report of Ron Sandler, the outsider charged by the Government with saying what is wrong with our retail financial services business. He is expected to be highly critical of the way the with-profits industry has conducted itself.
As nobody in their right minds can seriously defend the insurance industry against the charge that they have tended to put their own profit motive ahead of the interests of policy-holders, and are a long way from being the most efficient providers in their field, the Sandler report is the regulatory equivalent of shooting fish in a barrel. …