I said, “You know, they refused Jesus, too”, he said, “You’re not Him”
The FCA launched an update to its over-riding principle “treating the customer fairly” on May 14th. I am underwhelmed and have struggled to find anything to say about the initiative which is positive. There is nothing wrong in the new hierarchy of principles/rules and outcomes, but I am in no mood to be lectured, I am looking for the FCA to show me they are resourced and motivated to enforce the moral law.
The problem with regulator’s operating at this level of abstraction is that it’s really quite hard to know how to respond other than
You’re right – now what are you going to do about it?
I suspect that every new generation of regulators, feels it has to reinvent itself, distance itself from its own past and restore confidence with its public (the consumer).
But in doing so, they are asking those who are being regulated to refresh their attitude to customers and engage with a new way of doing things which is essentially the message of Christ’s sermon on the mount
Therefore all things whatsoever ye would that men should do to you: do ye even so to them: for this is the law
If it was the law in Palestine AD 0, it is the same law in Great Britain in 2021. The FCA’s version is laid out as follows
In essence, we want to see firms putting themselves in their customers’ shoes, asking themselves questions such as ‘would I be happy to be treated in the way my firm treats its customers?’, or ‘would I recommend my firm’s products and services to my friends and family?’
Organizations and those who run them will ask these question for two reasons,
- because they want to
- because they have to
and the FCA is saying that “want” and “have” to , are so entwined that unless you want to treat your customers as you would yourself, you have no reason to be in business.
the corollary to which is that if firms do not have the consumer principle at the heart of what they do , they are having to force it on themselves and will necessarily come up short.
The question the FCA should be asking of themselves is in what circumstances would a business want to behave in another way and rip its customers off? The answer to this question is equally obvious. Most businesses do not have a stakeholder culture where the interests of customers are balanced against the interest of owners and management, but operate by the principle of “what can we get away with – right here – right now”.
This approach to the consumer “the pragmatic consumer principle”, relegates the consumer’s interests very low down the stakeholder pecking order and I fear it is the principle that the FCA is really engaging with.
The regulatory choice
Jesus set out to change the world by preaching a consumer principle in his sermon on the mount. He cast what he was saying in context – even then it was “the law” and there’s plenty of written evidence in the Old Testament and in other religious texts, that even 2000 years ago, this consumer principle was well established.
The regulator has the choice of preaching to us the gospel of Matthew or dong something about enforcing it. Right now, its public are confused and disappointed that what they hear about the FCA is in its failure to enforce against organizations ripping customers off. I am not alone in wanting to see the focus of the FCA’s activities being on implementing the principle of “treating the customer fairly”. I really don’t want another lecture on Matthew 7; 12. I really do want to see the FCA refreshing its enforcement powers and going about its business more effectively.
The FCA should not be setting out to change the world, the world knows what is the law and has done for millennia. The FCA should be putting its shoulder to the rock of the intractable problem that in a dirty world, financial standards are far from pristine.
So though I have read the FCA’s new consultation,
I will not be responding formally to it and I will go and watch the test match at Edgbaston on 10th June , rather than listen to the FCA preach another sermon.
But if you want to hear the FCA, you can register for their event on Thursday lunchtime by registering here
The proposals seem to have a number of uncertainties associated with it.
The Consumer Duty would require firms to:
• ask themselves what outcomes consumers should be able to expect from their products and services
• act to enable rather than hinder these outcomes
• assess the effectiveness of their actions
Outcomes – is this just the result of the product, or the effect on other circumstances. In other words, is it the effect on the bottom line?
If it’s the bottom line then enable and hinder will be important. If it’s just about the product, then it has little meaning for many people.
Let me give an example, using real figures..
Jane is single, 75 years old and pays £125 a week rent, £1,250 a year Council tax and has £10,000 of DC pension savings. She gets a full old state pension of £137.60.
At the moment, using the current 15-year gilt rates and the GAD tables for her age, she is treated as having a notional income of £14.19 a week from her unused savings. On that basis she is entitled to:
Guarantee Pension Credit £25.31 a week
Housing Benefit £120.00 a week
Council Tax Reduction £23.97 a week
Total weekly benefit £169.28
Total weekly income £306.88
She decides to make use of her pension savings
She buys an annuity (using the Money Advice Service calculator for a lifetime fixed income annuity) of £647 a year, or £12.44 a week
Her benefit entitlement is now:
Guarantee Pension Credit £27.06 a week
Housing Benefit £120.00 a week
Council Tax Reduction £23.97 a week
Total weekly benefit £171.03
Including the state pension and annuity gives:
Total weekly income £321.07
Alternatively, she decides to drawdown the whole of her savings, giving her £10,000 in the bank (or in an interest generating account – any income from interest is ignored for benefit purposes). That £10,000 is ignored for benefit purposes.
Her benefit entitlement is now:
Guarantee Pension Credit £39.50 a week
Housing Benefit £120.00 a week
Council Tax Reduction £23.97 a week
Total weekly benefit £183.47
Including the state pension gives:
Total weekly income £321.07
She has exactly the same income as she would have if she took an annuity but has £10,000, plus any income that it generates.
The outcomes are very different.
If the expected outcome is to make her ‘better-off’, then the annuity does this in comparison with her previous position. Using drawdown has the same ‘outcome’ in income terms.
If the outcome is just about how much the annuity pays, then a few pounds either way makes no difference.
Does selling her an annuity enable the best outcome?
Does selling her an annuity hinder the best outcome?
Isaac Asimov’s first rule of robotics said “A robot may not injure a human being or, through inaction, allow a human being to come to harm.”
If the new duty ignores provider inaction, and allows Jane to choose the worst outcome, then not much will have advanced.
Her situation is predictable but will that mean that it falls to be treated as being included in “take all reasonable steps to avoid foreseeable harm to consumers”?