Better Conduct


The Financial Conduct Authority (FCA) is the UK regulator for consumer finance. It is already highly influential but, post-Brexit, the direction it takes will be even more significant. To prove the point, it has begun conducting a major review of the conducts and behaviours in consumer finance.

Conduct in financial services concerns itself with actions taken by financial institutions that negatively impact on their customers and on the wider markets. While they have always had a fiduciary duty to look after their clients, it has taken some time for financial services’ firms to appreciate fully that the traditional model of treating customers fairly but sternly does not meet modern conduct standards. Current regulations seek to achieve consistent positive consumer outcomes even where this is prejudicial to the firm providing the service.

The FCA’s review begins from the admirable starting position that consumers need to be able to invest with confidence. It recognises that consumers have more choice but that many of the decisions that need to be made are complex and are beyond full understanding, which leads to increased risks. The FCA thinks that far too often consumers leave their savings in cash because they don’t understand the alternatives; and that consumers leave their pensions invested in loss-making products because they are too reticent to take fresh decisions.

Tellingly, the FCA believes that the overwhelming majority of retail investors are best served by readily understood, well-diversified and low-cost investments, which are available in the market, but which retail investors rarely choose. They don’t choose wisely because retail consumers seldom seek out financial advice. “We need the system as a whole, including regulation, to work better for consumers.” The FCA considers that the greatest harm is caused by unregulated advice and online scams.

The FCA’s “call for input” is open for replies until 15 December 2020. The results of the review will not be binding on EU regulators, but they will undoubtedly take an interest in some of the proposals. The FCA favours outlawing a whole host of investment products that it considers too complex for consumers. It also plans a ban on all advertising unless it resembles cigarette packaging – bland colourless copy with prominent stark WARNINGS.

MMPI believes that consumers need to be protected – but seriously questions whether more draconian regulation is the correct approach. Increased regulation has proven itself adept at driving more and more consumers and providers to unregulated markets. It’s a simple human response to the complexity of the paperwork on offer. Go regulated and be prepared to read hard-to-comprehend key information documents that are intended to be easy-to-read but aren’t. Go regulated and be subject to signing numerous declarations and confirmations that apparently offer regulatory protection. Go unregulated for an easier life! – less paperwork, fewer signatures, no rigmarole!

Regulation is a mammoth industry with a conflict of interest that is present in all big business. It’ll never vote itself out of existence. Providing sensible advice to sensible consumers is far better conduct of behaviour.

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