"This is not an appeal for more regulation. On the contrary, our vision is that there is substantial scope to remove red tape that generates bureaucracy for no benefit. "
Andy Agathangelou, founder of the Transparency Task Force, has written an Open Letter to the Chancellor of the Exchequer about the trust deficit in financial services, arguing that the Government’s objectives for growth would be better achieved if the financial services sector were regulated in a smarter way.
Along with over 400 co-signatories, Agathangelou says a "timely opportunity exists for the new Government to boost economic activity by enhancing ‘trust and confidence’ in the financial services sector through working with all stakeholders to introduce smarter regulation that better protects and serves consumers and small businesses".
He says that currently, the growth potential of the UK financial services industry is held back by the low level of trust the public has in the sector.
The FCA’s biannual Financial Lives survey shows that only 11% of adults strongly agree that they have confidence in the sector and levels of confidence have not grown, even as memories of the Global Financial Crisis fade.
The survey also found that vulnerable and marginalised groups are the least likely to trust the industry and young people are more distrusting than older ones, suggesting that the problem may worsen, not ameliorate, over time.
The FCA research shows that consumers cite high-profile financial scandals, as well as their own personal negative experiences, as drivers of distrust. They are also more comfortable with their own providers than those they don’t currently use, suggesting that the industry as a whole is judged by the standards of its ‘bad apples’. It also implies that consumers may be resistant to trying new products and providers, a barrier to innovation and growth.
The letter says: "If the Government is to succeed in its ambition to boost economic activity and tax receipts from the sector, this trust gap must be bridged. We believe that this requires a substantial reduction in the prevalence of misconduct cases, and that there must be an enhanced focus on ensuring that consumer detriment is fully compensated when things go wrong, so that the public can have trust and confidence in knowing there are robust checks and balances in the regulatory framework that protect their interests.
"The ‘caveat emptor’ approach taken by the previous administration was, in our view, profoundly damaging to the economic prospects of this crucial industry. On its watch, a series of independent reports concluded that financial regulation was not provided to an adequate standard."
In addition, Agathangelou says there were numerous other scandals that have so far not been subject to independent reviews but deserve such scrutiny, including the exploitation of vulnerable, low-income workers by payday lenders and ‘rent to own’ retailers, the ongoing plight of mortgage prisoners, the Woodford Equity Income Fund, the peer-to-peer lending sector, and more.
He added: "As things stand, unpicking the above cases and dealing with the ongoing series of fresh scandals that will inevitably keep occurring, until the underlying causes are addressed, will provide a substantial headwind to economic growth under your administration, and will continue to divert Treasury resources and attention.
"If we are to improve the industry’s performance, we must therefore address the legislative and regulatory shortcomings that have allowed its standing to suffer and the resultant trust gap to emerge and grow with dire economic consequences. Put bluntly, our financial regulation must become smarter.
"But this is not an appeal for more regulation. On the contrary, our vision is that there is substantial scope to remove red tape that generates bureaucracy for no benefit. This is an appeal for smarter regulation that is properly enforced. That latter point is key, given that there is ample evidence we can share with you that ineffective enforcement has been a notable weakness in the performance of our conduct regulator."
