Regulation as red tape that ties up business and strangles the economy. It is a transatlantic political trope. Said Javid, the ambitious business secretary, is just the latest to attempt to garner political capital by promising to cut through it and save £10 billion as a result.
However, on the same day came a report that demonstrated how very necessary some regulation is.
The Financial Conduct Authority, which regulates the financial services industry, published a review yesterday of the treatment of people holding old fashioned life insurance policies – pensions, endowments, bonds and their like.
Those that hold them are often locked in for the long term. If they want to take their money out, the exit fees can be crippling. If they want to leave their policies ‘paid up’ by allowing them to run to maturity without future contributions, the fees can sometimes wipe out any potential investment gains. Communication with policyholders is poor; many have found out too late that their savings may leave them far short of their financial goals, even if they haven’t incurred any punitive exit charges.
Part of the problem is the way the policies were designed. Complex and with high-charging structures, they often appeared designed to benefit the people selling them far more than the unfortunates who paid into them.
This didn’t matter as much when interest rates and investment returns were higher, and when there was such a thing as inflation to make the wheels go round. Those whose policies matured in the 1980s, and even in the 1990s, may have achieved their goals even after all the charges.
That has changed, and while a new generation of simpler savings products with lower charges have been developed that better suit the new reality, far too many people remain stuck in the old world.
The problem has been made worse by the emergence of a new breed of financial company, dedicated to gobbling up huge books of old style life policies and bolting them together, cutting the administration costs, and then growing fat off charges which remain fixed and high.
The FCA says things are a bit better at companies which remain ‘customer centric’ by dint of the fact that they remain open to new business and so have an interest in keeping their policyholders sweet.
But even then, the garden is hardly rosy.
Six insurance companies are under formal investigation: Prudential, Old Mutual, Abbey Life, Scottish Widows, Countrywide and Police Mutual. A cursory glance at that list reveals they aren’t all closed to new business.
We’re probably not going to see a PPI style review, but those who have these policies and think they might have been stiffed have the right to complain and to take the issue to the Financial Ombudsman if they so desire.
The watchdog is also set to convene an industry summit with the aim of securing a cap on all those vexatious exit fees and ensure a happier outcome for those locked in by the life industry.
It’s better than anyone might have expected given where this process started. The FCA made a dreadful hash of things by announcing the review by means of a newspaper interview which sparked fears that life insurers would have to go back and review millions of dusty old policy documents. It then sat on its hands when life insurers’ share prices lurched into a black hole, before belatedly clarifying its intentions. A bad mistake on the part of the watchdog as opposed to the journalist, who got a scoop and did his job, and one would hope that it has learned from the error.
Fortunately, it pressed ahead with the work and what has emerged might ultimately lead to a fairer financial future for millions of people, who practised the virtue of thrift and saved hard only to find themselves getting soaked.
Perhaps this sort of regulation might better be referred to not so much as red tape but as gold tape?
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