New regulations and innovative products make life difficult for the regulators, but they also mean they are increasingly important.
Financial regulators are no strangers to criticism. Depending on what’s happening they are either accused of being too aggressive or not aggressive enough. In the last month it’s been more of the latter as Gena Miller took time out from campaigning for a second referendum to oppose what she sees as a laissez faire approach to MiFiDII enforcement.
She called for the Treasury to probe the FCAs apparent reluctance to enforce the cost transparency of MiFiDII. This requires firms to show all explicit and implicit costs in percentages, pounds and pence.
However, according to her freedom of information request, the regulator has not taken action against any firm for failing to comply with these transparency requirements. They had receive six self-reports from firms for non-compliance and had written to eight firms about disclosure. This is despite 50 firms being in breach according to an SCM Dossier published back in April.
She is quoted as saying:
“The message this failure is sending to the market is that the FCA does not consider breach of such laws to be important. In addition, the FCA has a statutory objective to promote effective competition in the interest of consumers. But if consumers don’t know what they are paying for their investments, competition can never be effective.”
The FCA has defended its record saying that just because it has not taken enforcement action, it isn’t necessarily ignoring breaches. Enforcement, they say, is just one of the tools they use and only comes out in cases of clear and deliberate misconduct. They have been lenient with the sector due to the magnitude and complexity of the changes, and a belief that, where they can be shown to have made efforts to comply with the law, a softer approach might be more effective.
As we’ve written about before, the FCA has given firms a period of grace in the initial implementation period. However, their approach recognises an emerging truth. Regulation – both from the enforcement and regulatory perspective is becoming more complicated.
New regulations such as MiFiDII take a lot of getting used to and companies can easily make mistakes along the way. They are intended to catch out deliberate wrong dooers rather than punish firms which are simply struggling to update their processes.
A complex world
The financial world is also becoming more complex. Products are becoming less transparent and more complicated and more difficult to take a stance on. The rise of fintech creates an entire sector which is often unregulated and un monitored. At times they appear to be passing the buck, such as calling for further due diligence checks.
The FCA is not the only regulator around the world to come under fire and if they do have a ‘too difficult pile’ it’s easy to understand. However, this is when the regulators are needed the most. If the regulator finds it difficult to understand new products, what chance do consumers have in which case there is a clear question about whether they should be allowed on the market.
At the same time new regulations do create problems for everyone. The FCA may be right to believe that consultation and support represent the best ways forward, but regulations still have to be enforced from time to time. Otherwise they quickly lose their value.