It’s remarkable how stupid intelligent people can be sometimes. Did Sharon Stone (attested IQ 154) really believe she was emoting in a vacuum about Chinese oppression in Tibet at the Cannes Film Festival? If so, Christian Dior firing her as brand ambassador will have brought her back to reality with a bump.
Then there’s Eliot Spitzer, former governor of New York State and ruthless extirpator of corruption, who was caught with a $3,000-a-night prostitute and his trousers down. Unlike F1’s Max Mosley, he didn’t manage to get away with it. (Come to think of it, maybe Max won’t either.)
Still, Spitzer is lucky in one respect. Even his many enemies concede he won’t just be remembered for his egregious one-night stands. One of his principal achievements has been to demonstrate that watchdogs with a clear and relentless sense of purpose can come up with real results, even when confronting such powerful and tricky customers as Wall Street investment bankers.
How unlike our own insubstantial equivalents at the Financial Services Authority who, for years, have procrastinated over the need for greater transparency in exposing malpractice.
That ineptitude, reluctance, prevarication – call it what you like – can be ascribed to a number of factors. One, most certainly, is that there is no political capital, à la Spitzer, to be made by bringing high-profile cases against alleged malefactors.
More importantly, the FSA’s hand is weakened by the ineffectual (from a consumer point of view) and confused regulatory regime that exists in the UK.
A good case in point is financial advertising. Why, other than for rather unconvincing historical reasons, do we still have an essentially bipartite system splitting jurisdiction between the Advertising Standards Authority and the FSA?
Here’s how the ASA website explains the matter to puzzled would-be complainants:
“We have powers to investigate financial advertising on TV and radio, but complaints about product-related claims in non-broadcast ads for mortgages, general insurance, investments, pensions, cash savings and bank accounts are dealt with by the Financial Services Authority (www.fsa.gov.uk).” By the way, if you have problems with credit advertising, you may instead need a trading standards officer, but only if it’s a non-broadcast ad you’re complaining about.
Not neat and tidy, certainly not consumer-friendly and not even logical. Is there something altogether more complex about product-related ads in print that requires a specialist regulator? Or by the same token, is TV and radio advertising so simplistic that it does not?
Confusion over its role aside, the FSA is also infected with a culture of deference towards the financial community it regulates. After years of buffeting from consumer groups over introducing a “naming and shaming” procedure that would subject serial offenders to public scrutiny for the first time, the best that the FSA can come up with is a vague promise about a league table comparing the efficiency of financial services companies in dealing with complaints, plus a little greater detail about the numbers and types of case that make it to the enforcement level.
Why not more? Well, of course there’s the statutory confidentiality enshrined in the Financial Services and Markets Act to be considered.
Finance is not like other sectors, runs the confidentiality argument. It has the potential to wreck the rest of the economy, as the Northern Rock crisis began to demonstrate all too clearly. You can’t have people participating in a run on a bank (or more stealthily, shorting its shares), just because of some ‘irresponsible’ or ‘out of context’ criticisms the FSA might care to make on individual companies which have fallen down on their fiduciary duties now and again.
Too little, too late?
Equally, you could use the Northern Rock crisis to turn this argument on its head.
You could say that the present regulatory system is biased to an unreasonable degree towards the interests of shareholders and City institutions at the expense of consumers.
You could add that nothing really happens in the world of financial services regulation until it’s far too late. Hence the years of unrestrained endowment mortgage and pension misselling.
Finally, you could point out that naming and shaming has had a salutary influence on the performance of companies in other, non-financial sectors. A good example is Energywatch’s “naming and shaming” policy, introduced five years ago. It has undeniably shaken up standards of service, particularly over billing, among the utilities.
But “naming and shaming” is not part of the FSA’s agenda. It has no desire to become a high street hero, preferring the subtler admonition of the smacked wrist to judicious confrontation with serial offenders. So long as that is the case, the consumer will be the ultimate loser.