This weekend's Financial Times carried an article I really wish I'd written. In "Shoot by all means, but ask questions first" (Financial Times, 19 October 2012), Jonathan Eley describes a typical winter scene in the Eley household. Mrs Eley wants to protect the children from frost bite, so she insists they wear coats, scarves and gloves. Mr Eley goes to work without any of these things, and the children don't want to wear them. So what can she do?
Now imagine the scene inside the Financial Services Authority (FSA) 10 long years ago. Policy makers want to stop consumers getting frost bite when they buy financial services, so they make firms give consumers lots of product information (hats, coats and gloves). But the information's dull - so consumers don't want to read it. What can a regulator do?
On 16 October 2012, the Financial Conduct Authority (FCA) (one of the FSA's two successor bodies) gave us its answer. In "Journey to the FCA - To make financial markets work well so consumers get a fair deal" (available here), the FCA explains that it will stop the weather getting cold. (It clearly won't succeed - but it isn't nearly as daft as it sounds.) By taking the FSA's Treating Customers Fairly regime and pushing the boundaries out, the FCA will deliver better consumer outcomes than the FSA achieved. Where the FSA assumed that wholesale firms were sophisticated enough to look after themselves, the FCA will take a more assertive and interventionist approach - especially if wholesale market transactions create risks, charges or fees that could affect consumers. Where the FSA only intervened when consumer detriment had occurred, the FCA will scan the horizon for possible risk and loss, and intervene to stop it occurring (by banning some products, and making firms withdraw misleading financial promotions). And where the FSA only took enforcement action if a rule breach occurred and caused material loss, the FCA will act whether there's a loss or not. It will also act more often, against more firms and individuals, pushing for harsher penalties and compensation. In fact, it's even considering whether to introduce product pre-approval requirements, just in case.
And the article I could hardly bring myself to write? On 15 October, the Bank of England published "The Bank of England, Prudential Regulation Authority - the PRA's approach to insurance supervision" (available here). It's not so much that this is a difficult article to write, or that the Bank of England's proposals are especially disagreeable (in fact - they're perfectly sound). It's more that I feel like a consumer a decade ago. Compare and contrast: the FCA's paper is colourful, easy to read, available in an interactive form on-line, and has some new things to say. The PRA's paper is...largely in black and white, and so intensely written and repetitive that it's a struggle just to get through it. It also lacks an element of surprise - it's not just that it's academic and use Latin phrases (no surprise to anyone who knows and loves the Bank); it's also that it doesn't seem to have anything new to say. That might be because central banking should be boring (and it should). It could also be because so much of the new regime is about Solvency II. But it seems more likely that it's because the Bank has somehow managed to suck the life out of (what to me at least, is) a really interesting subject.
I think this means that whilst the Wharfsiders at the FCA will have the home fires burning, and the weather in E14 may never get cold; back in the basement at Threadneedle Street, it's still pretty chilly. Coats and scarves, anyone?