It is a great pleasure to be here this evening and to be asked to provide a response to Clive’s presentation.
Let me say first of all that we very much welcome the publication of the Supervision Guides. They are clear and straightforward summaries of the FCA’s approach to firms of all sizes.
And I think that we should all particularly welcome the fact that each guide is relatively short, is clearly written and contains some practical examples and case studies.
Since joining the building society sector only a few months ago I have been struck by a real sense of common purpose between the objectives of our members and those of the FCA. We are all deeply interested in and committed to really good customer outcomes.
So whilst we will undoubtedly continue to have robust discussions and debates about detailed rules, regulations, approaches and initiatives, we should always be aligned around that common purpose and objective of the customer being at the heart of our members’ businesses.
Clive spoke about the importance of trust and doing the right thing, with which we wholeheartedly agree.
I want to talk briefly about three themes that we see as critical to the successful application of the FCA’s approach to supervision.
1 We want to see a conduct regulator that deals not only with bad behaviour, but continues to recognise and promote what is good.
2 We need a conduct regulator that acts in a clear, transparent, consistent and proportionate fashion off the back of plain, simple principles and rules, with real focus on actual consumer outcomes, rather than pure compliance though bureaucratic box-ticking.
3 We need a conduct regulator that delivers its objectives at reasonable cost – in the past, high regulatory costs have not always equated to effective regulation: effectiveness always comes at a price, but that price should represent real value for money to all concerned.
Organisations in each Firm Systematic Framework category will find the four new guides very useful. They present consistent regulatory principles and tools applying to the largest C1 firm through to the smallest C4 firm – but setting out clearly the differences that firms in separate categories can expect, in view of their size, organisation, products and scale of operations.
This is especially important for C3 and C4 firms that no longer have named supervisors.
In particular, we at the BSA welcome the way in which the guides set out how the three-pillar supervision model will vary with each conduct category. It is good to see conduct regulation that is clear, proportionate and focuses on the systemic risks that are most likely to have the greatest adverse impact on consumer outcomes.
Although not a regulator ourselves, the BSA shares the FCA’s objective that firms comply with conduct rules and treat customers fairly. The BSA will continue to work with the FCA on a number of formal and informal exercises designed to promote good retail conduct and good consumer outcomes. Plus achieve that permanent reduction in poor behaviour that Clive referred to.
While we may occasionally disagree with the regulator about methods, we and our members are absolutely at one with the FCA in promoting good and fair behaviour towards customers.
The BSA has a broad perspective on conduct risk. We have at least one member in each of the four supervision categories. So we see the issues at a national level, regionally and locally. From the Nationwide, to the smallest societies. From complex, diverse business models to straightforward traditional retail savings and residential mortgage business.
2. Rules & Principles
Beyond the regulatory rules and principles, there is a whole legal, commercial, political and media universe. There are claims management companies (some of which help consumers find legitimate remedies and some of which pursue any kind of claim – valid or not – on which they can turn a buck), and there is a Financial Ombudsman Service that does a great job for consumers and businesses, but is not a regulator and has the responsibility not to act in a quasi regulatory capacity.
We also have European law, which sometimes bears little relationship to the UK experience. For example, having gone through the rigorous Mortgage Market Review, we now have the European Mortgage Credit Directive on the horizon which, at worst, could be a complicating exercise that jeopardises, rather than helps, consumers – placing a question mark, for example, over self-build at a time when it is being actively promoted by government and opposition parties.
As Clive said, the FCA will become consumer credit regulator in a fortnight’s time. It will be faced with laws that, while clearly intended benefit consumers, in certain areas are nothing more than box-ticking with no discernable consumer benefit. It will be a challenge for the FCA to square those parts of the Consumer Credit Act which have no real regard to consumer detriment, with the FCA’s proper focus on consumer outcomes.
We also have a Consumer Rights Bill in Parliament. The EU, sensibly, carved financial services out of most of its broadly equivalent legislation [The Consumer Rights Directive]. In contrast, and despite its anti-‘goldplating’ pledge, the UK Government has chosen to apply this piece of ‘horizontal’ legislation to the already strongly ‘vertically’ regulated financial services industry.
The unintended consequences that could lead to poor consumer outcomes are already becoming apparent – firms intent on exploiting the resulting complexity for their own ends will do so; responsible firms who focus on good consumer outcomes will be increasingly stifled by bureaucracy. There is a real danger that consumers will suffer because of measures designed to protect them.
Together – the regulator, the regulated and trade bodies – will have to navigate these minefields. With each overlying piece of legislation and regulation the risk increases that we lose transparency and proportionality; that process and procedure takes precedence over best actual consumer outcome, that the sector increasingly becomes unable to deliver the products and services that consumers want and need.
I was struck by a comment from one of my early round of meetings at the BSA, that one of the most frequent questions a consumer wants to ask an advisor is “what would you do in my circumstances?” A question which the advisor is pretty much precluded from answering! The script won’t allow it!
I am sure we all recognise that the FCA is not necessarily in control of the complete agenda. But it would help if the FCA could explicitly recognise that more laws and more regulations do not necessarily mean greater consumer protection. Where you can bring simplicity to bear, we implore you to do so.
And, as importantly, where you have the opportunity to promote good behaviour and support innovation, rather than just prevent or punish bad behaviour, we actively encourage you to do so.
It would be a nonsense for anyone in financial services to think that, after the events of 2007 – 2008 and major incidents like PPI mis-selling, we can (or should) have financial services regulation on the cheap.
I simply say here that high expenditure by regulators does not guarantee good consumer outcomes. Every change in regulation, every new data request, comes at a real cost to regulated firms. In the mutual sector, that is a cost that either has to be passed on to consumers or taken out of the profits which would otherwise fund future growth.
We ask the FCA to spend firms’ money wisely. To continue to focus on delivering a highly effective conduct regime that also represents great value for money.
Going forward, in addition to its existing conduct, market and financial crime responsibilities, the FCA will have three additional jobs of regulating consumer credit (1 April this year), of establishing a payments regulator (April 2015) and of becoming a fully-fledged competition regulator (from a date in 2015 yet to be set).
In principle, the BSA welcomes all these developments. From our perspective, it makes sense for our members to have only two formal regulators to deal with.
But it would be unfortunate if such regulatory consolidation, which should naturally bring economies of scale, actually resulted in increased regulatory costs.
In conclusion, my underlying theme has been one of partnership. Partnership between the FCA and those firms (from whatever sector) that genuinely put customers first – by genuinely I mean in practice, not just in glossy policy and TCF statements.
And partnership between consumers and those good firms.
Let’s move forward together.