DCSIMG

Jeff Salway: Be prepared for a flood of regulatory keepers turning into poachers

  • by Jeff Salway
 

There was much foaming at the mouth in outrage and indignation at the news that Hector Sants is joining Barclays.

You can understand why. Sants is the former chief executive of the Financial Services Authority (FSA), appointed in 2007 and accused of falling asleep at the wheel as the financial crisis unfolded. Barclays is the bank at the centre of the Libor scandal.

Sants, incidentally, left the FSA just days before Barclays was hit with its £290 million fine in June. He is now to be the bank’s head of compliance and government and regulatory relations.

It is an unpalatable alliance, there’s no beating around that bush. The revolving door ­between regulator and banks ensures there will always be jobs for the boys regardless of ­performance and potential ­conflict of interests.

On the other hand, so what? The regulatory challenges facing banks over the coming years are formidable, both within the UK and on the European and global stages. Other banks will be envious of Barclays benefiting from the experience, insight and contacts of such an instrumental figure in the UK regulatory landscape, particularly one that’s also an ex-banker.

The FSA isn’t a government body, or even government-­funded, so the rules barring ministers from taking certain jobs in the first year after leaving office don’t apply to regulators.

There should arguably be far tighter restrictions governing such moves – proposals are under consideration in the US – but this government lacks the appetite for that battle.

For all the rights and wrongs, what is certain is that no-one should be shocked. Those who make the rules and those who bend or even blatantly flout them have always made the most comfortable of bedfellows.

And what’s currently a mere trickle could well become a flood. The UK’s financial services regulatory structure will undergo profound change in the coming months, with the Financial Conduct Authority and the Prudential Regulation Authority taking over in April.

If the new bosses of the FCA are true to their word in forging a very different approach to that of the FSA – with greater emphasis on intervention and enforcement – more than a few noses will be put out of joint in Canary Wharf. Sants isn’t the first regulatory gamekeeper to turn poacher and he most definitely won’t be the last.

Putting your money where your principles lie should be easy these days, given the proliferation of ethical and green investment funds.

Yet it seems the fund management industry is still out of step with consumers. Few funds actually manage to reflect the biggest ethical and green concerns among consumers, with most happy to merely “screen out” the traditional sin stocks (i.e. tobacco, gambling and alcohol).

Asked what their main ­ethical and green concerns were, ­consumers surveyed by FairPensions picked out fossil fuels, fraud or corruption, forced ­labour and child labour.

If you are investing ethically because you don’t want your money held in firms involved in such activities, you’re likely to be out of luck. Just 11 per cent of ethical funds screen out child ­labour, for example, while 89 per cent screen out tobacco.

And that’s the funds that tell you where they invest – nearly half don’t actually publish their full holdings.

The FairPensions research paints a disheartening picture of a sector for which there is growing demand. Why are fund managers unable to reflect the concerns and views of investors, let alone tell them exactly where their money is going?

People more than ever want to invest with a clear conscience, the financial crisis creating greater demand for socially responsible investing. Fund managers clearly have a long way to go before they’re able – or perhaps willing – to capitalise.

One inevitable outcome of new investment advice rules coming into force next month is that the advice market is set to shrink considerably.

There are currently an estimated 37,000 IFAs in the UK. The FSA has claimed less than 10 per cent will leave once the retail distribution review – which includes a commission ban and new qualification demands –comes into force on 1 January.

In contrast, however, Ernst & Young has predicted there will be just 20,000 left by 2015. This week Standard Life said that 20,000 figure will be reached by the end of next year.

Sadly, the Edinburgh-based insurer is probably right. The controversial new rules will improve quality of advice but leave more people without access.

That means more people than ever investing without taking advice. Many will think themselves capable of managing their own savings and investments, but the fact is that experience isn’t the same as professional expertise. If you are not sure about that, today’s article on the success enjoyed by investment fraud gangs should help.

 

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