Why? Because the political wind is beginning to blow favourably towards those who realise our regulator needs to move away from discouraging you and I to invest as we please. Chancellor George Osborne, who is clearly behind Wheatley’s dismissal , said “a different leadership” is needed to take the FCA forward. In other words the betting has to be Wheatley’s successor won’t be as outdated and wrongheaded as he was.
Earlier this year I gave a speech, controversial at the time, entitled “Our regulator doesn’t understand investment”. I set out to identify the heart of the problem. Little did I know then that my views seem to be heading into the mainstream! Here is the keynote from it:
“Many of us realised a long time ago that financial regulation has little to do with regulation and everything to do with politics. The FCA is obsessed by the thought that one day a little old lady may lose her life savings of £5,000 in an investment, complains to her MP who then stands up in parliament and wants to know what the regulator is doing about it. The whole culture is driven by this fear and that doesn’t lead to a healthy understanding of what investment is.”
An excellent book by the recent CEO of Berenberg Bank, Andrew McNally called “Debtonator” was published the other day. In it he draws attention to the inevitable consequences of this overarching culture of fear and protection. He said: “Regulators have become obsessed with protection: pensions need protecting, consumers need protecting and savers need protecting. On one level they are right – protection from poor or fraudulent business practices is essential – but protection has turned to denial of equity ownership not just in the regulators’ approach to pension funds but in the setting of society’s approach to risk.
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“We have to ask ourselves if we’ve sleepwalked into a regulatory environment in which we discourage too many not to claim a stake in the rewards of economic progress itself. As what they call ‘risk assets’ a scary way to describe equity are deemed unsuitable for everyone apart from those who can tolerate ‘the risk’.
“In other words that fear of the little old lady beating the regulator about the head has blinded the FCA to what investment is all about. Hence our pension funds are ordered to fill their portfolios with ‘safe’ government bonds as compared to ‘risky’ equities (despite the fact that over any long term period you care to measure in the last 100 years equities naturally outperform bonds), retail investors are discouraged from investing other than through fund managers who are forced to carry out ludicrous ‘suitability’ tests, and something new like the democratisation of investment through crowdfunding is viewed with fear and loathing by our regulators, sitting out there in Canary Wharf.
“In summary I believe our regulator has essentially become little more than an over zealous traffic warden. A traffic warden knows how to put a parking ticket on a car but he is not obliged to understand how that car works. Indeed the mechanics and motive force of investment are, very sadly, beyond our regulator’s understanding for now.”
The FCA’s new CEO has a massive job to do to change the culture and understanding of North Colonnade. The size of the task was laid bare by the admirable Simon Davis who produced a forensic but highly readable report into the regulator’s breathtakingly inept handling of price sensitive information concerning quoted insurance companies in March 2014. A summary of this can be found in my City Grump article.
Not only will he/she have to retrain the staff but also politicians, and indeed journalists, will need to be persuaded to take a more mature and far-sighted attitude to our citizens experiencing the natural ups and downs of personal investment. The omens are reasonable, as exemplified by the courageous decision of the previous Government in setting the public free to choose what they do with their pension pots, but there is a long road to travel yet.
For just as the Spanish Inquisition attempted to hold back the development of religious progress, Wheatley’s FCA set out to prevent all of us from making our own investment decisions, with disastrous consequences for the ability of our next generation of companies to attract that investment. For all our futures we must pray that his passing ends this current destructively nihilistic regulatory era.
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