Financial regulation failed us 3 ways (at least)

justaquickie

As I see it…

Enough has already been said about irresponsible banking practices, short-termism, ridiculous city bonuses and an ungoverned risk culture that has produced a number of bubbles around the world all now bursting (1). Much less has been said about another failing in regulation that caused the UK bubble to be so big and so ‘burstable’: for over a decade we have not had access to a trustworthy, secure, flexible financial mechanism to save for our futures (2). What’s that got to do with regulation? - look at what has been available…

• Final salary pension schemes have now gone for most outside the public sector
• Contribution-based pension funds are not trusted for many good reasons, not least:
  • Poor performance
  • Excessive management charges
  • Poor tax breaks
  • Opaque and inaccessible funds
  • Rip-off transfer penalties
  • Unguaranteed, insecure funds (admittedly some recent improvements)
  • Poor AVC management, options and returns
  • Equitable Life!
• Other shares and fund schemes are similarly not trusted for good reason:
  • Endowment mis-selling and poor performance
  • Insider dealing and poor fund managers
  • Small-print that can and will be used against you

Many of these issues could and should have been cleaned up with informed, insightful and strong regulation. The lack of effective regulation has meant that lots of people have, reluctantly in many cases, turned to property. The hassle of buy-to-let would have been willingly avoided by many if they had confidence in, and access to, a hands-off fund or scheme of integrity. Reduced demand would have lessened the ‘pyramid effect’ and property becoming so over-valued. Instead, people have felt compelled to over-stretch to buy; exercising prudence just meant you would lag further behind with time. This in turn led to the final failing we now all know much more about: allowing ridiculous lending practices and debt-packaging to service the massive levels of lending (3).

I have little doubt (1) and (3) are now consigned to the history books. When the dust finally settles, and one day it will, I wonder if the government will remember to fix (2)?