Is there too much regulation of Financial Services?

In Friday's Irish Times, there was a report by Una McCaffrey about a meeting of the Dáil's Finance and Public Services Committee.

FF TD Ned O'Keeffe ...suggested that the banking sector could already be "over-regulated". "IFSRA is already all over the place as far as I can see it" he said, adding that bank services, in his view,usually offer good value for money.

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This was in the context of a meeting to discuss bank charges and credit card charges.

My gut feeling is that there is too much "red-tape" regulation of financial services, but not enough real regulation. If a bank fills in the forms and puts in a few warnings on its product literature, then it can do what it wants.

In particular, I hate the ads which say "terms and conditions apply" - of course terms and conditions apply. It would be much better if they were obliged to quote some real condition up front.

I also hate the "ABC is regulated by the Irish Financial Services Regulatory Authority". What does this mean? Absolutely nothing. It's an ego-trip for IFSRA, but a waste of money and an irritant to listeners. Worse still, it may convince people that there is some form of guarantee.

IFSRA loves publishing prominent warnings about companies registered in the Caribbean who have no license to opertate here. But they have yet to take real action against big Irish institutions such as the Irish Nationwide over their lending practices or Irish Life and Permanent over their geared trackers.

Brendan

Regulation of Financial Services

There may be the wrong type of regulation, but I doubt that there is too much.

There are a number of ways of regulating financial services (or anything else). The most common, which is the one we have, is put in place a set of rules. Anything that contravenes them is wrong, everything else is fair game The advantage of this approach is that it lets the market be creative in developing products and finding niches; the disadvantage (which we are seeing) is that it lets the market be creative in other ways.

The opposite approach is not to set out what isn't allowed, but to set out what is. The regulator defines the product (as for SSIAs or PRSAs), and this is the only product allowed. This definitely has advantages, and the UK financial services regulators seem to be moving in this direction. It works well for clearly defined sectors (e.g. tax advanted pension savings) but may not work so well in broader categories, such as lending.

In theory, a principle based approach would be best - don't define detailed rules, but define broad principles - recent statements by ISFRA about ethical banking are along these lines. However, who is to say whether a given product or activity conforms with principles except by setting out rules.

Of course, it doesn't help that ISFRA know nothing about financial services other than prudential regulation of banks. It doesn't help either that the typical financial services consumer is always looking for high return without any risk, and refuses to look at the small print or to take responsibility for decisions made.

d

Re: Regulation of Financial Services

I'd be inclined to agree with Brendan's view of there being too much red tape and not enough real (consumer orientated) regulation.

One real benefit of regulation in the last decade is the clear exposition to the customer of charges levied on investment products. In the past such charges were often completely opaque (e.g. initial units on pensions) and usually exhorbitant (e.g. first six months or more of contributions went on charges). Unfortunately some people have actually complained about all the additional "small print" they get nowadays and don't bother to read it, tending to blame somebody else (their broker, the financial institution etc.) when things "go wrong". I guess you can't please all of the people all of the time...

Re: Regulation of Financial Services

The Competition Authority Report on the Non-Life Sector noted that

The broker market is generally supplied by a large number of players. When account is taken of local markets and specialisation in niche markets, the level of concentration on relevant markets is higher, and possibly relatively concentrated.[bold] Evidence that smaller and local agents have quit the business has been attributed to the regulatory burden on intermediaries, suggesting regulatory barriers.[/bold]

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Re: Regulation of Financial Services

I remember a few years ago listening to the radio in the States. The adds all included a spiel at the end "terms and conditions apply, yada yada, regulated by, yada, yada, etc."

I remember think that we were lucky that we had the cop on not to waste peoples times listening to that meaningless nonsense. I should have known better.

Can we all just agree that terms and conditions apply to everything, all ads are lies, and be done with it.

-Rd

Re: Regulation

We can't seem to regulate enough.......We can't keep adding new regulations and expect that there will not be downsides........We cannot be blind to the question of cost and we must strive to mimimise the burden.

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Taoiseach, 20th January.

Not Bad

The Irish record isn't bad overall, especially since disclosure and the removal of the DETE. OK, there has been Morrough's, but apart from tax evasion there hasn't really been any major scandal, or widespread rip off. There has been pockets like the borrowers at the Irish Nationwide, and irritations like misleading ads for remortgaging, and geared trackers, but these are being addressed by IFSRA.

Re: Not Bad

and geared trackers, but these are being addressed by IFSRA.

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I'm not sure that this specific point is completely accurate:

Re: Not Bad

We signed up for Banking OnLine with Bank of Ireland a few years ago. They showed me the schedule of their charges and I felt that they were reasonable and agreed to them.

Now I get a statement from Bank of Ireland refunding all these charges, because they had not been approved by the Director of consumer Affairs.

This is really crazy. We agreed to pay for a service and now they have to refund the fees. The Director of Consumer Affairs/IFSRA should have no role whatsover in banking charges for businesses or personal consumers.

Brendan

bank charges

Similar sentiments in a letter in today's Irish Times:

CONTROVERSY OVER BANK CHARGES

Madam, - For those of us swimming in the deep end of the pool the sight of Charlie Bird and others splashing around in the kiddie end is becoming very tiresome.

I am a business customer of AIB. I have not lost confidence in the banking system. I have not met anyone who has lost confidence. The only thing I have lost confidence in is the need for regulation. Not one customer complained. What is the need for a regulator on the charges any business makes as long as they are transparent?

Everyone knew what they were paying in charges. My company carried out a number of foreign exchange deals. I have no complaint about the rates and I do not want any refunds to satisfy some ill-informed hysteria and an unnecessary regulator.

What makes all this so annoying is the waste of banks' resources in investigating these imaginary problems. The main Irish banks may be bastards, but they are our bastards. I would rather be dealing with Bank Centre or Baggot Street, not Berlin or Brussels.

The real scandals, such as the offshore schemes for senior bank personnel, seem to be forgotten.

Will those who are out of their depth please leave the pool? - Yours, etc.,
JAMES FOX, Managing Director, IMC Packaging Ltd, Oak Road Business Park, Dublin 12.

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Re: bank charges

Hi Cobalt

Thanks for that. I looked for the guys email address but couldn't find it. I will call him tomorrow.

brendan