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The Life Insurance Market
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I think I may just have had my Tory moment. The aphorism goes that normal people start off their thinking on the idealist left wing, but as we grow older and more cynical, so we all become Tories in the end! I never thought it would happen to me. But two month’s ago this column called for the wholesale reform of the FSA and this month that is stated Tory party policy.
Party politics has always tacitly controlled regulation, in that the FSA tends to do what the Treasury implies it thinks it should. But now the politicians of both stripes have shed their invisibility cloak. Just as the Tories clearly feel that making public their plans to reform the FSA will win votes, so Hector Sants announces the end of light touch regulation and a clamp down clearly designed to show that the Treasury is slamming shut the stable door.
Their timing was sadly not driven by this column’s stated opinions, but rather by the FSA’s failure to properly regulate wholesale banking and the agony that is causing Britain. But as every IFA should remind their Tory candidate at once, (I doubt the FSA or Treasury will be in listening mode) the damage the FSA have wrought on retail sales of prudent investments and savings is a match for the destruction they allowed the banks to cause, even if its agony lies in the future and doesn’t grab the headlines or have such immediately frightening impact.
Through pretending power it did not have in the wholesale markets and through the overzealous use of the power it does have in the retail markets, the FSA has followed the Treasury’s ignorant lead and destroyed personal financial prudence in the UK. Like the prime minister himself, the FSA has achieved the very opposite of what it sought to achieve.
Callum McCarthy acknowledged this when he launched the RDR, and its erratic path clearly revealed the muddled Treasury thinking and confused brief that has consistently been the root cause of regulatory failure. Happily sense has prevailed and despite its several good parts, the RDR as a whole will now simply fade into several small policy initiatives rather than become the strident reality Callum seemed originally to envisage. That’s why the FSA set the RDIP timescale so that the next election can decide its fate. They are not certain enough of their ground to go it alone and want a newly minted political mandate behind them before they actually change the retail landscape.
This gentle end to the RDR’s hideously expensive life, will follow that of Principles Based Regulation just this week; continuing the long tradition of spectacular FSA u-turns made without any apology. Hector Sants has simply consigned the vast amounts of investment ordered by his predecessor to the bin. We will not be able to recoup the millions of hours and pounds and trees spent complying with what he is now scrapping. We must merely accept whatever new cost his new idea causes us.
But don’t blame the message-boy. This egregious result is clearly rooted in the rapidly changing political brief from the Treasury. Their panic has meant that the cure for crooked bankers is being forced on all of us who have caused no such systemic damage.
Revolt is tempting, but not practical, so we can but hope that the Tory plan to revert to separate regimes for wholesale and retail markets will come in time to halt the thrashings about of the broken bureaucratic monster that amateur idealism and now political panic has forced upon the IFA.
Tom Baigrie
LifeSearch MD
This article was published in 19th March edition of Money Marketing.
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