2nd April 2012

Who breaks a butterfly upon a wheel?

A beam of light shone brightly, albeit briefly, into the regulatory darkness when I read that the Prudential had branded the FSA legacy proposals as ‘ludicrous’ and ‘horrendous for consumers’.

A leaked internal e-mail published in the Sunday Telegraph revealed the Pru had lobbied the FSA to avoid existing products from coming under RDR adviser charging rules, and that the regulator’s top-up commission ban was a compromise.

The email written by Barry O'Dwyer, deputy CEO of Prudential's UK business, dated March 9, also suggests that Prudential should strengthen lobbying efforts to change regulatory changes that it sees as "ill-judged".

Well firstly, although the Prudential were perhaps a little embarrassed, stating it was “misjudged” that their views or at the very least those of Barry O’Dwyer have hit the hallowed pages of the ST, I think that advisers should take stock of this e-mail as it should be loudly applauded.

It is perhaps the first of many such expressions of concern that could and perhaps should be forthcoming from many other firms in the weeks and months left toward 1^st January 2013.

Providers are rightly very concerned, not always expressed publicly and not always for the same reasons as IFAs. But there is common ground nevertheless in the view that the FSA are in fact going too far, too quickly and with too high an industry price being paid without consideration of even a simple cost benefit analysis on their ever changing proposals.

IFAs have very little, possibly even zero influence on the FSA. Sadly it is rumoured that AIFA, according to some at the FSA, are seen as a bit of a joke that could not be taken seriously. And so for a provider to place itself in the firing line by going public, either by design or default, to criticise some aspects of regulatory change is a real breath of fresh air.

All provider firms rightly want and need to “work constructively and positively with government ministers and regulators on a wide range of issues to safeguard the interests” of their customers. It is also the case that almost without exception, the industry is united that it can see much of the good in RDR very well, but they can see the bad even better.

It is getting a “Star Chamber” style regulator to acknowledge the bad and deal with it where the problems start and the cost attached to it grows. It is vast, unending, unaccounted for and often carries an unintended consequential cost that the FSA is blind to that ultimately hits the consumer in the pocket.

The regulation “industry” in the UK today has become a pantomime in many ways. It is though a vital part of our industry and in fact many aspects of our lives, yet time and again the prospect of a simplified and common sense approach to regulation has been snatched from the jaws of victory by a regulatory mindset that is based on the principle of “Nanny knows best”. Frankly it frequently does not.

Goodness knows what the cost of regulation has been over the last 30 odd years. The trail of failures from NASDIM to FIMBRA to PIA, now FSA and no doubt the shortly to come forth and multiply FCA is littered with good intentions combined with a failure to listen and in particular learn

The core principle of good regulation should be based on the KISS principle.

This famous acronym was coined by Kelly Johnson, lead engineer at the famous Lockheed Skunk Works. Johnson translated it as 'Keep it simple stupid'.

The principle is best exemplified by the story of Johnson handing his team of design engineers a handful of tools, with the challenge that the jet aircraft they were designing must be repairable by an average mechanic in the field under combat conditions with only these tools. Hence, the 'stupid' refers to the relationship between the way things break and the sophistication available at the time of breakdown to fix them.

Instead we have regulation that has become almost a grotesque. Regulation in the UK today is an industry; it is often filled with individuals who are very, very well qualified, highly intelligent but often severely lacking in common sense, an ability to listen and keen sense of vision. Regulation within so many industries has become self-perpetuating, it has a need to justify its expensive parasitic existence, feeding on those it regulates with a voracious financial appetite to fuel the ever increasing activities it carries out, without in many cases, a clearly designed sense of purpose or vision

So when Barry O’Dwyer suggests that “the personal prejudices of some key individuals can determine the direction of regulation” very sadly I suspect he has hit the nail on the head.

I think that many in the industry see regulation as a reflection of what is happening in society generally today where minority interests, with little accountability yet massive influence at somebody else’s great expense, carry the day.

Take for example over the last couple of weeks the following events in the outside world:

We read that “Poor parenting was a key factor behind last year’s riots”. The Riots, Communities and Victims panel carried out an enquiry into last years’ riots and concluded “school and police failures and a lack of values among young people as important causes of the looting and violence that gripped English cities last August”.

Really? Are we as a nation so stultifyingly incapable of working this out ourselves that we need a “Riots, Communities and Victims panel” to do it for us? How much has this cost, who pays, does it make a difference and if not who is responsible? Who even thought up the idea of a “Riots, Communities and Victims panel”?

We should be very worried indeed with the “Riots, Communities and Victims panel” because this organisation, rather like regulators is not open to scrutiny where it does not want to be. “We will be open in everything we do unless there are good reasons not to be”. Sounds familiar?

Then up pops Liam Stacey, the Twitter idiot who made some ill judged and tasteless comments in aftermath of the collapse of Fabrice Muamba. Should he have gone to jail for what he wrote? But the jail term is one thing, what amazes me is that this individual was caught, tried and jailed within two weeks of the “Tweet date”. Is there no other crime in Wales that warrants such a rapid response. As one sage posted “He could have downloaded hundreds of thousands of pictures of child porn and he would have escaped with a suspended sentence. Such is the madness of British justice”.

Madness indeed and the above are great examples of huge and unaccountable resource being used to address problems that are best resolved in much lower cost more common sense way.

Is the UK today so incapable that we now really need, at vast public or industry expense, panels telling us the stark staring obvious? Do we really need the swift and draconian application of justice taking precedent over violent, unpleasant physical crimes, theft, burglary, extortion and other matters that common sense should tell you valuable police time should be attending to?

This is sadly Britain today.

Who are the members of the “Financial Services Consumer Panel” who seem to be over-ridden by prejudice?

How is the ”. The Riots, Communities and Victims panelfunded and what are the outcomes of their pontification?

And in Wales, recalling a famous quote from William Reece Moggin 1967, “Who breaks a butterfly upon a wheel”?

FSA/FCA, RDR, Regulation, Panacea Comment