Nobody should be surprised, after PPI, LIBOR and FOREX, that there has been a lot of regulatory activity in relation to conduct in financial services firms. Neither should anybody underestimate the difficulty of the task facing regulators in dealing with major issues like these. However, we all have a right to expect such activity - whether taken by regulators or by law-makers across wider conduct areas, to be co-ordinated, focused, proportionate, transparent, consistent and effective.
Unfortunately, over time we have seen a continual chopping and changing of laws and of regulatory rules, structures, approaches, practices and enforcement policies, which has helped neither businesses nor consumers. The tendency of the UK authorities to ‘front-run’ and ‘gold-plate’ EU legislation hasn’t helped either. And the fact that we have ‘horizontal’ laws (industry-wide) and ‘vertical’ regulations (usually made by sector regulators like the FCA), each covering much the same ground, causes even more confusion.
Commitments to simplify or not to gold-plate, while no doubt genuinely meant at the time, are often short-lived: until they are dusted down and repeated, only to fall by the wayside yet again – and so the cycle continues.
My concern is that, bit-by-bit, a situation is created where the large majority of businesses, that want to make ‘good’ profits and achieve a sensible and fair balance between this, prudence and consumer outcomes, are forced to spend a disproportionate amount of their time and resources on compliance. Some - including me - would say that we are there already – the tipping point has been reached. At the same time, those firms that put profit above their customers’ interests are perversely able to shelter behind the increasing regulatory and legal complexity, perhaps along with a veneer of ‘cultural change’.
The BIS call for evidence
Here is a practical example. In 2014, the Department of Business (BIS) stated that “There is a general agreement across business and consumer groups that the existing UK consumer law is unnecessarily complex.”
To help address this problem BIS introduced the Consumer Rights Bill, which was designed to improve, consolidate and simplify UK consumer protection law. BIS described the resulting Consumer Rights Act 2015 Act as “the biggest overhaul of consumer laws for a generation”.
Firms had to review, and change, their arrangements in the light of the 2015 Act and the public received a great deal of information about it. All this was costly and time consuming but it all seemed to be in a good cause.
Then, a mere six months after the 2015 Act was implemented, BIS published a call for evidence on - terms & conditions and consumer protection fining powers
. This document canvassed a range of additional measures closely related to those dealt with in the 2015 Act. If the Act was, indeed, "the biggest overhaul of consumer laws for a generation”
why is it necessary, within months, to float new requirements covering similar or related ground? Why weren’t they wrapped up in the earlier work? As is so often the case, words and actions are not aligned.
The call for evidence gives rise to two key concerns about consumer protection laws and regulation –
- First, this piecemeal approach, which we have often seen before, for example in relation to consumer credit law, is costly for business and confusing for both consumers and businesses.As the BSA said in its response: "we are unclear why the matters covered in this call for evidence were not included in the, closely-related, changes under the Consumer Rights Act last year.” It is surely not unreasonable to expect that the biggest overhaul of consumer laws for a generation might hold good for longer than six months, before needing to be supplemented.
An alternative approach
- Second, financial services firms are already highly regulated by the FCA in the areas covered by the call for evidence. In the interests of both consumers and businesses, it is crucial that the kind of ‘horizontal’ provisions envisaged in the call for evidence take into account the ‘vertical’ requirements that already exist or are in the pipeline, for example in FCA conduct of business sourcebooks. To have similar, overlapping requirements for financial services firms and their customers is unnecessary, confusing and gives rise to potential double jeopardy.
There is a much better way to protect consumers than legal and regulatory churn. It involves a proper, fully researched consideration of relevant problems and potential solutions. Followed by constructive, detailed face-to-face dialogue between government, regulators, businesses, consumer organisations, and consumers.
This would be followed by well thought out, simple rules that, wherever reasonably possible, were of a ‘horizontal’ nature so that they could accommodate a range of product areas and different business sectors. Necessary ‘vertical’ modifications would be made by individual sector regulators to take into account the features of different products or means of delivery, but they would be kept to a minimum - and the fundamentals would be consistent across the board.
The rules would need to focus on the right areas, and target accountability at the correct people, in the businesses concerned. A small part of the exercise would relate to consumer responsibilities – consumers are entitled to know their responsibilities, a topic on which in my opinion there is undue sensitivity.
To make things even simpler and more joined up, the UK would seek to influence EU law with an intention that, as far as was practicable, they made sense in a UK context, but government and regulators would not front-run or gold plate those laws.
Once in place, the rules would need to be enforced strongly, fairly, transparently, proportionately and consistently. They would need to be given plenty of time to bed down. Nothing is set in stone, but there should be no rush to change or replace things at the first sign of a problem or of adverse publicity. In time, everyone concerned - including businesses and consumers - would get a proper understanding of their rights and responsibilities, which would benefit consumers and good businesses.
No doubt we will continue to hear more words like ‘simplification’ and ‘proportionality’ but nothing will improve until relevant parties genuinely
realise that constant legal and regulatory churn is not the same thing as strong consumer protection and regulation – indeed, it is precisely the opposite.