A call to arms: The FSA's constant creep

We should be looking over our shoulders and we should be afraid, we should be very afraid...

It says on a little label in the rear view mirrors of many American cars and in the lyrics of a Meatloaf song that objects in the rear view mirror may appear closer than they are. What I want to warn against in this article is the risk of doing nothing when danger is creeping up from behind and breathing down your neck.

What am I talking about? Why, the FSA’s creep across the industry, of course! This creep is taking place allegedly from a moral standpoint in order to protect the public, but the truth is that it is driven by the regulator’s own organic growth and its need for fee income to feed itself.

Did you know that average salaries for FSA staff have risen 22% over the last five years to £51,232. Senior management wages have risen 14% since 2005/06, from £206,391 to £236,950 in 2009/10. And it will hardly surprise you to hear that the enforcement division saw the largest jumps in salary, with average salaries up 26% from 2005 to £53,207.

Since the regulator started its work, fee income has constantly been on the rise. The cost of regulation was initially imposed rather like an extra level of VAT on the industry at around 18%. God only knows where this cost has risen to now but it is probably nearer 25% or 30%. Whilst domestic mortgage brokers have seen their turnover diminish to the point of collapse, the regulator has constantly increased its fees. I don’t say that we don’t need regulation but, now that one market has been sucked dry, which will be targeted next to feed the regulator’s growing wage bill?

Doesn’t the government have a duty of care over those it regulates? The Oxford English Dictionary definition of a regulator is

a person or thing that regulates something, in particular:

a person or body that supervises a particular industry or business activity.

Supervision is one thing but the regulator in its current form has become more like judge, jury and executioner. Rather than supervising and making sure that the industry runs in a robust and healthy manner, it is suppressing activity and innovation and is forcing the industry down a route that is less about customer choice and more about generation of an income stream for itself. 

I was speaking recently to a senior manager at a major bank. He informed me that the FSA compliance team scrutinizing their activity had risen from 6 people to 28 people, who all seemed to be falling over each other looking for things to criticize in the bank’s activities. This has led to serious demotivation of the bank staff, who now believe that they can do nothing right. Regulation is becoming so rigorous and the pressure of the fault-finding attitude is such that many staff are questioning their position and in some cases have decided to leave. 

If a major bank cannot withstand the psychological pressure of heavy-handed regulation, what chance do smaller institutions have? Sometimes institutions believe they are acting in accordance with the Financial Services Act and go along with the regulator so as not to rock the boat and draw attention to themselves. What about institutions claiming that non-regulated mortgage contracts can only be accepted from regulated people? Where does it say that in the Financial Services Act?! This sort of response is the effect of an atmosphere of extreme caution which is spreading throughout the industry. Like a herd of wildebeests being hunted by predators, institutions run about blindly, trying to appear super-compliant and hope that it will be someone else that gets singled out. 

In an ongoing attempt to make up its earnings gap the regulator has entered the small business market and is looking at regulating bridging and short-term lending contracts. This may be relevant when it applies to residential lending but tell me how it benefits anybody if it is applied to commercial lending? Of course, the buy-to-let sector will probably be the next to feel the regulator breathing down its neck. 

The pressure of regulation is undoubtedly inhibiting the natural innovative impetus of the industry, for which we have long been famous throughout the world. The danger is that choice for the consumer will be stifled and we will end up with only bland and beige products.

Trade associations offer the benefit of some protection, for instance the Association of Bridging Professionals, the National Association of Commercial Finance Brokers, and the Association of Mortgage Intermediaries, but they cannot do this work on their own. Individual businesses need to step up to the plate. If you are not already a member of one of these bodies, become one.

We also need to make members of the government aware of what they are signing off in legisltation. Take for instance the recent outcry from the housing minister, to which I referred in a previous article. When he found that he personally didn’t qualify for a mortgage, he suddenly became outspoken about the fact that regulation had overstepped the mark. Sometimes our politicians are simply not aware of the issues faced by those of us who live in the real world.

We should be actively lobbying our own MPs about this regulatory creep and the inherent damage that it is causing to our own business community, the business community at large and to our international reputation. From the outside we must look like an industry inviting and enjoying flagellation from a dominant regulator, which treats the regulated individual as guilty before investigation. This is not part of our national constitution. 

So speak to your competitors down the road, tell them how you see things and see if they are of the same opinion. Taking your observations and complaints to local MPS will encourage them to ask questions in the House or to address committees. What is needed is a strong groundswell of opinion if we want to turn the tide and ensure an even-handed future in this industry, which oils the wheels of commerce and supports the economic wellbeing of this country. One exercise I like to carry out is to keep a tally of the number of jobs that have been created or safeguarded by my commercial finance activity. This industry is not just about money. It’s about people and people’s lives.

I will end with a couple of verses from the Walrus and the Carpenter by Lewis Carroll. The Walrus and the Carpenter have just led a crowd of tasty young oysters for a pleasant stroll along the shore. The oysters have trotted along unsuspectingly but the sinister intention of their “supervisors” becomes clear only when it is too late and the bread and butter has been brought out. 

"It seems a shame," the Walrus said,

"To play them such a trick,

After we've brought them out so far,

And made them trot so quick!"

The Carpenter said nothing but

"The butter's spread too thick!"


"I weep for you," the Walrus said

"I deeply sympathize."

With sobs and tears he sorted out

Those of the largest size,

Holding his pocket-handkerchief

Before his streaming eyes.


"O Oysters," said the Carpenter,

"You've had a pleasant run!

Shall we be trotting home again?'

But answer came there none--

And this was scarcely odd, because

They'd eaten every one.

You may of course think that I am exaggerating and that there is nothing to fear from regulation spreading across the whole of the industry at great cost to individual businesses. If that is the case I suggest you might think of applying for a job with the FSA as the future there looks a lot brighter than it does around here! Where else, in an industry in decline, could you get a pay rise of this scale? Only a government department could award itself remuneration like this while the rest of us are struggling to make ends meet. And it has the nerve to complain about the remuneration of bank employees and is due to look into how intermediaries remunerate themselves! Pots and kettles come to mind!