One of the things that always disappoints me about financial regulation is how many corrupt people are allowed to be involved in financial services in the first place.
Things may ultimately be changing as the FCA moves toward a more interventionist and aggressive policy toward those who want to become regulated individuals and run regulated businesses.
Many will say that it is too late.
The problem is that the financial services business has always been a magnet for greedy people. There is a lot of money to ‘advise’, low barriers to entry, and chances to meet wealthy people.
Realistically, many of the problems are there because the barriers to entry are too low.
In some cases, they’ve acquired some basic qualifications, have offices in small towns, and are trying to find victims (sorry I meant clients).
At this point, I want to emphasize that I’m only talking about a few hardcore rotten people who are attracted to financial services and financial advice for the wrong reasons. Because they want to get rich quick and run away from their duties when everything goes badly and let the FCA, FOS, FSCS, etc. settle the mess.
I know and respect many high quality financial planners and financial advisors of all kinds. Good, hardworking, and professional people love working with clients, spend much of their free time studying for exams, and dedicate their lives to building their own businesses to provide a valuable service to their communities. These guys are good guys.
I’m talking incompetence, rogues and outright criminals who should never have been allowed into the profession in the first place.
We hope that number will decrease in the future as FCA develops a more proactive approach to new entrants.
Indicators of progress can be found in the FCA’s Annual Report and Accounts 2022/23 Edition, published this week. The FCA said in its report that it had shut down about 630 companies over the past year for failing to meet the regulator’s “minimum standards,” a 30% increase from the previous year.
On the appointed representatives side, the FCA has cut that number from 43,000 in 2020 to 35,000 today, a significant 19% reduction. Whether it’s the fraudulent sale of pensions or simply bad advice, some of the worst regulatory issues have undoubtedly been among appointed officials. The sector has been so poorly regulated in the past that the FCA is now active.
While the FCA will never stop all cheating, it now puts more effort into stopping the behavior that initiates it in the first place. It can only pay dividends.
Sectors with higher entry standards will ultimately be better sectors, providing better advice and higher quality financial services. As the FCA has learned, it’s much better to thwart the bad guys in the first place than to clean up their mess later.
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Kevin O’Donnell is the editor of Financial Planning Today, where he has worked as a journalist and editor for over 40 years.