UK: Who Would Be A Regulator?

Last Updated: 17 April 2014
Article by David N. Kirk

It's no fun being a Regulator.  Either you are criticised for being supine, and allowing the world to go to hell in a handcart because your 'light touch' form of regulation has allowed an excessively greedy regulated community far too much latitude; or you are criticised for being supine because, having allowed so much latitude, and presided over a global financial crisis, you don't have the resources, or the capability, or the courage to bring those responsible to account; or, having learned the lesson that the supine posture is not what people want, you talk tough, and you mount a high profile and very public strategy to right wrongs, hit the financial services industry where it hurts, and protect consumers from the depredations of the market, and the next thing you know your Communications team has got a few words wrong and the heavens fall in.  Suddenly everyone – including probably the government – wants you to go back to being supine.

The very public discomfort of Martin Wheatley, the CEO of the FCA since April 2013, in the last weekend of March over the 'botched press briefing' about a thematic review into life insurance contracts must have been hard to take when what he was expecting to do was to announce the next raft of tough policies.  In particular, he wanted to flag up the FCA's new remit to take on the Pay-Day loan industry, a message that got slightly lost in the furore.

Using the media to put out your messages, and trusting them to understand what you are about, is a risky business.  This is particularly so when the messenger, namely your Communications department, is not necessarily best placed to understand the complexities of the message that you want to promulgate. It is so easy for a few words to be misplaced.  If, however, you were to delegate to a regulatory expert the task of explaining the FCA brand, incorporating Martin Wheatley's strong views on messaging, you would not  expect the result to light up the night sky.  Such a person would balk at reducing complex issues to sound bites, but would probably fail to get much of a message across to an impatient media.  There is a limit to the number of times you can say: 'this is all jolly complicated' (which of course it is) before you appear to come across as bumbling and ineffective.

Martin Wheatley has an ambitious programme, and he has an aggressive public relations strategy. He clearly believes that the medium is the message. Hence his reliance on the Communications team to advise him how to project his plans. Understandably, as CEO, and the public face, of the FCA, he adopts a very public posture, not afraid of the media, and eager to explain his plans. He enjoys (or appears to) presenting on stage to the FCA staff, or to a wider industry audience, or to the media, articulating consumer protection messages, speaking effortlessly without notes.    

The underlying projects in Wheatley's programme are important, but none of them will be easy to deliver, from the reform of Pay Day loans, through various other manifestations of consumer protection (Wheatley's main theme), which include competition in the financial services sector, early intervention on product mis-selling, reform of commission structures, and review of life insurance contracts.  Then there are the big ticket items, challenging unethical conduct in the banks, holding top bankers to account by regulatory or criminal action, and introducing major changes to supervisory controls and practice.  All this will be played out against an employment market that will probably make it more difficult to recruit supervisors with the experience and clout to take on the regulated community in a robust manner.  The complaint I frequently hear from banks is that the supervision teams do not understand the business they are supervising to an extent that allows them to have meaningful dialogue.  Many of the most experienced supervisors went from the FSA to the PRA, and the subsequent attrition rate of FCA teams has been worryingly high.  While staff are working hard to get up to speed, and there are many first rate individuals in the division, an overall lack of skill and experience in Supervision will not make the Wheatley programme easy to deliver.

So where does last week's storm leave the FCA?  Will it be, like most news stories, a storm in a tea cup, last week's news consigned to the archive before you can blink?  Although the 'stock market bloodbath for Britain's life insurance industry' sounds bad, the market had recovered within a day or two.  Or will the lasting damage be more profound?  Will Martin Wheatley be 'so much weaker now' as one City critic has claimed? Was the mistake, as the FT claimed, a 'Gift to the City'?  Will the FCA's internal investigation reveal cock-up and chaos, or misunderstanding, or some deeper malaise?  By the time the report is published, this will be last year's news, of course, but there will be a lingering, and potentially dangerous, sub-text which could serve to curb some of the FCA's ambitions.  If the FCA can make a mistake that leads to market chaos, how dare they criticise any part of the regulated community for making similar mistakes etc etc?  They may be reminded of this for some time to come.  And this would be a shame, because the FCA is surely right to review the operation of the so-called 'zombie funds', and many other practices, which are thought to be dubious and damaging to clients' interests, and have been damaging the market for far too long.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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