BLOG: 25 years of regulation – are consumers better protected?

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Steve Bloor of Open Resolution looks back at a quarter of a century of financial regulation.
BLOG: 25 years of regulation – are consumers better protected?

While it may not be an occasion for hanging out the bunting, we will shortly be reaching a significant anniversary in financial services regulation.

On 29th April it will be 25 years since the original Financial Services Act came into effect, replacing ad hoc and largely unenforced industry codes of practice with formal statute based regulation. So what has changed in the intervening 25 years? Are consumers better protected now than they were?

In many respects regulation has come full circle in that time. Back in 1988 when statutory regulation was introduced, monitoring of the way firms conducted their business was handed to the newly created Securities & Investments Board (SIB) which, in turn, had the power to delegate this to sector specific “self regulatory organisations” (SROs). These SROs created bespoke rules to meet the needs of particular sections of the financial services industry – life insurers, intermediaries, investment managers and securities dealers. Prudential regulation (i.e. how much capital large firms had to hold) was kept largely separate and remained with the Bank of England (for banks) and the Department of Trade and Industry (for insurance companies).

Then in 1997 the Labour government came to power and immediately announced sweeping changes to the structure of regulation. The SIB and SROs were abolished and replaced by the Financial Services Authority (FSA). Prudential regulation was taken out of the hands of the Bank of England and DTI and passed to this all-powerful new super regulator. The previous regime, the Government said, had failed because of what were described at the time as “duplication and dysfunctional turf wars” between the SIB, SROs, Bank of England and the DTI which, in turn, had led to costly overlaps and delayed responses to problems.

The old structure had failed to prevent various scandals such as endowment and pension transfer mis-selling. There were also perceived to be synergies and economies of scale that could be achieved through integration into a single regulator. Financial businesses, apparently, did not want different regulators each asking them the same questions. This new super-regulator would do away with all that and usher in a brave new world of effective regulation.

But the scandals and problems continued – near financial meltdown in the banking sector, PPI mis-selling, LIBOR rigging, mis-selling of interest rate swaps. Then, of course, in 2010 a new Tory government came to power, keen to distance itself from and to rubbish its Labour predecessor.

So what do we get now? A “radical” overhaul that has split regulation out again into three parts – the Financial Policy Committee, the Prudential Regulatory Authority and the Financial Conduct Authority. But isn’t that structure pretty much where we started back in 1988 which was abolished under the Labour government because it lead to “duplication and dysfunctional turf wars”?

In financial services it seems the road to regulation is circular. And if it didn’t work before – what are its chances this time?

Despite this there have been a few notable achievements in the last 25 years for the benefit of consumers. The establishment of the Financial Ombudsman Service has given people access to a pragmatic, free redress system that is so lacking in the courts process, where judges too often take a very legalistic approach, failing to recognise the practical difficulties that consumers of financial products face in the real world. The introduction of the Financial Services Compensation Scheme means that many thousands of people who would otherwise have lost out when regulated firms went bust have managed to recover some or all of their losses. And, whilst FSA and SIB could certainly be criticised for failing to spot significant problems early enough, once they finally caught up they did take steps to ensure that victims of endowment, pension transfer, payment protection insurance and other systemic mis-selling problems received fair redress.

So at times the statute based regulatory system has provided the cure when problems have arisen – it just hasn’t yet found the means to deliver prevention. And that is the challenge faced by the new regulators. Let’s hope in another 25 years they’ve cracked it.

Steve Bloor is managing director of, specialists in resolving consumer disputes related to financial products and services.




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