Wishing list

Published by FT's Financial Adviser 3 November 2011

Last month, Lord (Adair) Turner spoke at the Mansion House City Banquet in which he set out how the new authorities (the FPC and the FCA) would undertake their roles and the powers they would need to deliver their objectives, also recognising the constraints they faced and how they need to be tackled and clearly explained to society.

Lord Turner described the last 20 years of the retail financial services sector as not being a happy period, punctuated with too many waves of mis-selling.  Lord Turner was disarmingly honest about how the FSA had, in the past, attempted several different approaches but that overall both society and the regulator had been dissatisfied with the results.  The total compensation paid is over £15b and rising and the number of Fos complaints have risen from 30,000 in 2000/2011 to 200,000 last year.  To emphasise the extent of the problem, Lord Turner said: "While we were reviewing with major banks, in the early stages of our treating customers fairly initiative, their processes to ensure fair treatment of customers, the same banks were selling payment protection insurance (PPI) not only to those customers for whom it might be a good product but to many for whom it was obviously not".

Lord Turner was absolutely correct to say that "the pattern of the past is not acceptable" and you do not have to be either a regulator or a consumer lobbyist to reach that conclusion.  It will also come as no surprise that the current regulator believes that the FCA should be given new powers to give the new approach "effective teeth".

However, Lord Turner believes that we all have to be realistic.  Resource for regulation is not restricted and there are financial constraints to be recognised.  The FCA's regulated community will amount to 27,000 firms and "the vast majority of these cannot be inspected or supervised directly at an acceptable cost to industry or indeed to society".  Lord Turner highlighted the trade-offs and has warned that "no system of regulation can - or should - try to create a nil-risk market environment".  We should all be careful what we wish for.

Philip Ryley is a solicitor and Head of Financial Services & Markets at Michelmores LLP, based in Exeter and London.