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New regulator should be ‘strangled at birth’, says think tank

Your Mortgage
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Your Mortgage
Posted:
Updated:
07/03/2013

The Financial Conduct Authority (FCA) will not be any different from the Financial Services Authority (FSA) and should be “strangled at birth” before regulators do any more damage, according to the head of economics think tank the Adam Smith Institute.

Eamonn Butler launched a vituperative attack on the regulator at the True Potential Conference in Birmingham, in which he said the FCA, like its predecessor, will have no understanding of its own purpose or the power of markets.

He argued that the frenzy to ‘bash bankers’ had led to the regulator focusing on the wrong thing – people and processes – when it should have been more intent on making financial products less cumbersome.

He made a number of criticisms of the FSA, which he described as ‘hopeless’ and said that the FCA’s 50-page document ‘The Approach To Regulation‘ indicates it is likely to be similarly flawed.

  • Butler said that regulation is killing competition, there can be ‘no new banks’ and it takes advisory firms six months to get authorised.
  • Regulation drives up the cost of supply meaning that it excludes poor people from receiving financial advice.
  • Because people are excluded from the system, it is harder to get them to save.
  • Regulation makes people feel safe when they are not (through the existance of the Financial Services Compensation Scheme, for example). It means they don’t put as much research into their decisions as they might otherwise have done. It excludes caveat emptor.
  • Regulation encourages complexity, risk taking and opacity. People are encouraged to produce and buy complex products because they are compensated.
  • The FSA just doesn’t understand products – “it doesn’t know a derivative from a dartboard,” he said.
  • Barriers to entry promote corruption. The lucky few who get their license have large incentive to lobby the FSA/FCA and ask for regulation that suits their needs.

Butler added: “The FCA will do what the FSA has done, government programmes don’t change quickly. But no one really knows what the split means, with the FCA managing financial markets and the PRA managing financial systems – the distinction is vague.

“Similarly vague is the regulator’s emphasis on a ‘healthy culture’ within financial organisations. This gives it huge discretionary powers, it isn’t easy to determine what is and isn’t a ‘healthy culture’. The whole thing is a recipe for cronyism.

“In my view, the regulator’s role should be  should be to make pensions and taxes easier to understand for the general population. When in fact, they are becoming increasingly complex.”

 

 

 

 

 


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