fsa replacing mis-selling with no-selling August 22, 2012
Posted by Bradley in : consumers, financial regulation , add a commentIn a consultation paper published today (comments requested by November 14) the FSA states:
We have found that the majority of retail promotions and sales of unregulated collective investment schemes (UCIS) that we have reviewed fail to meet our requirements, exposing ordinary investors to significant potential for detriment. This demands action. We are proposing to intervene in the market by changing our rules to ban the promotion of UCIS and close substitutes to ordinary retail investors in the UK.
Many sellers of these funds are not ensuring suitability and do not understand the relevant rules, so the FSA proposes to ban sales of unregulated collective investment schemes and “close substitutes” (including traded life policy investments) to “ordinary retail investors” (sales will be possible to sophisticated investors) (including investment through Individual Savings Accounts, self-invested personal pension schemes, platform services etc) reflecting a change in approach to stop problems arising rather than dealing with problems after they have arisen (and this includes restricting possibilities for regulatory arbitrage). The FSA says:
We are making the judgement that the benefits of improving customer outcomes for most retail investors outweigh the costs to the minority for whom they may be suitable.
Retail investors who genuinely seek out the investments will be able to buy them – the FSA’s concern is with respect to problematic financial promotion.
Under the heading “Who Should Read this Consultation Paper?” the CP says it will be of interest to consumers and consumer organisations. In terms of its subject matter, that is clearly accurate, but the document is not drafted to be accessible to those who are not used to navigating the complexities of the FSA’s rules.
remembering andrew August 21, 2012
Posted by Bradley in : events , add a comment20 years ago this week. What a welcome to South Florida!
financial opacity August 21, 2012
Posted by Bradley in : consumers , add a commentWhich? says that free banking (in the UK) is a myth, noting that even bank customers in credit are charged for withdrawing money abroad, and argues for more transparency (inviting support for its campaign to ensure the UK’s new regulator is a watchdog rather than a lapdog). The Sargeant interim report on simpler financial products published at the beginning of the month suggested part of an answer, proposing that the first three simple financial products to be approved should include an Easy Access Savings Account and a 30 Day Notice Savings Account. Note no simple current account is proposed – this is about addressing the savings gap:
There has arguably never been a more important time to help people take charge of their finances and manage their money better. With the volatile nature of the global economy, the sharp drop in UK household incomes for 2010-20112 and uncertain employment patterns, having financial provision and protection for today’s needs and the unexpected, is even more of a necessity.
1.3 At the same time there is a change in the nature of the relationship between the individual and the traditional functions of the welfare state. As the Government continues its reforms to promote work and personal responsibility, it is inevitable that more responsibility will be required of the individual to provide a financial safety net for themselves and their family.
But Which? suggests that it’s not that simple for people to make decisions about choosing and managing current accounts, so why not a simple current account?
EuroFinuse, in comments to ESMA about technical advice about possible delegated acts under the prospectus directive, raises some more general questions about inadequacies of summary prospectuses for debt securities and about deficiencies in disclosure with respect to the Bankia IPO in 2011. It’s not clear what EuroFinuse expects ESMA to do with these broad comments made in the context of a focused technical consultation.
libor – treasury committee preliminary report August 18, 2012
Posted by Bradley in : financial regulation , add a commentIs here. The report notes a “naivety” on the part of the Bank of England and a “dysfunctional relationship between the Bank of England and the FSA… to the detriment of the public interest” and adds to recent debates about whether the UK is behind the US in dealing with issues of financial regulation (an issue also raised by the Standard Chartered Affair):
The Committee is concerned that the FSA was two years behind the US regulatory authorities in initiating its formal LIBOR investigations and that this delay has contributed to the perceived weakness of London in regulating financial markets.
And the committee suggests it may have been misled:
It remains possible that the entire Tucker-Diamond dialogue may have been a smokescreen put up to distract our attention and that of outside commentators from the most serious issues underlying this scandal.
(Update: Here is the link to the volume reporting the oral evidence).
back to libor August 13, 2012
Posted by Bradley in : financial regulation , add a commentLast week I was here:
Now, back in Miami to the Wheatley Review of Libor Initial Discussion Paper, published on Friday, with responses requested by September 7.
transparency? August 3, 2012
Posted by Bradley in : transparency , add a commentTransparency is complicated.. Two recent reports illustrate this.
An IMF paper on Key Trends in Implementation of the Fund’s Transparency Policy shows some disparities in publication of IMF documents. A smaller percentage of ROSCs are published than of other documents (61% in 2011), though a note explains that the ROSC category
Includes initial ROSC assessments and reassessments produced by the IMF, as well as the World Bank and, in the case of AML/CFT ROSCs, by FATF and FSRB, issued on a stand-alone basis or in FSSAs. Does not include assessments done under detailed standards assessments.
This isn’t terrbly clear. The document is not drafted to make it easy for readers to understand the data. This note implies that the initial assessments included in the total have an impact on the percentage publication rate. But is that a good or a bad thing from the perspective of transparency? There’s a table which shows the percentage of Article IV/UFR Staff Reports which are published with deletions (but there’s no information on how extensive the deletions are). The document lists those IMF Members which did not publish any Article IV/UFR Staff Reports in 2011 (Antigua and Barbuda, Brazil, Brunei Darussalam, Djibouti, Dominican Republic, Equatorial Guinea, Ethiopia, Libya, Myanmar, Oman, Sri Lanka, Turkmenistan and Vietnam).
The UK Parliament’s House of Commons Public Accounts Committee published a report on Implementing the Transparency Agenda which states that more needs to be done to realize transparency. But the report notes that the Government does not understand the costs and benefits of transparency. And there are other criticisms:
It does not help government to meet the objectives of the transparency agenda when large quantities of raw data are released without ensuring that the data are fit for purpose. Some data are very difficult to interpret, such as on local government spending, and there are important gaps in information, such as incomplete price and performance information on adult social care. We are also concerned about some information not being presented on a consistent basis, again for example in local government.
Poor or incomplete data hinders the ability of users to exercise effective choice, for example on care providers. It also undermines the ability of service deliverers and policy makers to focus on improving quality.
The committee also suggests that there should be more information available about contracts whereby private entities agree to provide public services. And especially in the light of recent problems with GS4’s underprovision of security personnel for the Olympics, and questions about ATOS’ administration of disability assessments this seems like a good idea.
more on facebook accounts required for voting August 2, 2012
Posted by Bradley in : life , add a commentI complained recently about two awards schemes where people who have facebook accounts are invited to vote on the allocation of awards to non-profits(here and here). One advantage using facebook accounts might be thought to have would derive from the policy that users are only supposed to have one facebook account each, and thus facebook voting should not allow a person to cast multiple votes. But that does not appear to be the case. The facebook 10Q (reported in the Guardian here) states:
there are inherent challenges in measuring usage of our products across large online and mobile populations around the world. For example, there may be individuals who maintain one or more Facebook accounts in violation of our terms of service, despite our efforts to detect and suppress such behavior. We estimate that “duplicate”accounts (an account that a user maintains in addition to his or her principal account) may have represented approximately 4.8% of our worldwide MAUs as of June 30, 2012. We also seek to identify “false”accounts, which we divide into two categories: (1) user-misclassified accounts, where users have created personal profiles for a business, organization, or non-human entity such as a pet (such entities are permitted on Facebook using a Page rather than a personal profile under our terms of service); and (2) undesirable accounts, which represent user profiles that we determine are intended to be used for purposes that violate our terms of service, such as spamming. As of June 30, 2012, we estimate user-misclassified accounts may have represented approximately 2.4% of our worldwide MAUs and undesirable accounts may have represented approximately 1.5% of our worldwide MAUs. We believe the percentage of accounts that are duplicate or false is meaningfully lower in developed markets such as the United States or Australia and higher in developing markets such as Indonesia and Turkey. However, these estimates are based on an internal review of a limited sample of accounts and we apply significant judgment in making this determination, such as identifying names that appear to be fake or other behavior that appears inauthentic to the reviewers. As such, our estimation of duplicate or false accounts may not accurately represent the actual number of such accounts. We are continually seeking to improve our ability to identify duplicate or false accounts and estimate the total number of such accounts, and such estimates may be affected by improvements or changes in our methodology.
misleading advertising? August 1, 2012
Posted by Bradley in : consumers, truth , 4commentsI haven’t seen one 5 hour energy advert that isn’t really irritating. The latest I have seen begins with the statement that they asked over 3000 doctors to review 5 hour energy. It then goes on to say “and what they said is amazing” (seems to imply the over 3000 said something amazing). The ad then says that over 73% of those who reviewed 5 hour energy said they would recommend a low calorie energy supplement to their healthy patients who use energy supplements (note that the script refers to “a” supplement, not to the 5 hour energy product itself). The ad emphasizes the 73% figure (which appears prominently on the screen) but carefully doesn’t state that the 73% is a percentage of the (over) 3000 doctors. And the ad does not state how many doctors actually reviewed the product. And what the reviewing doctors were prepared to sign on to is pretty lame. But the ad then goes on to use the 3000 number again at the end (ask your doctor, we already asked 3000), reinforcing the impression that lots of doctors approved of the product. This sort of carefully constructed message, designed to give a very different impression from the one that the actual words used, carefully parsed, give should, I think, be treated as problematic in law.
perceptions and misperceptions: theatre and the commission July 27, 2012
Posted by Bradley in : financial regulation, life , add a commentThis week I went to see The Transit of Venus by Eric Northey at the 24:7 Theatre Festival in Manchester (UK) (today is the last day of the festival). The play was described as
a very cerebral, intelligent piece of writing, which unfortunately results in an overly highbrow performance which lacks any real emotional engagement on the part of the audience.
It is an intelligent play, but I thought the issues it raises of the relationship between science and religion are more than just cerebral issues. And I am not sue this is just because I live in the USA where evolution sometimes gets to be so controversial. Anyway, I thought the characters were believable (I was most impressed by Nathan Morris).
I saw A Midsummer Night’s Dream, a Filter Theatre Company production, at the Royal Exchange. This was like no production of the play I have seen before – in a good way – it was extremely lively and very very funny, but at the same time the actors sometimes spoke the lines in new ways that made you think. It’s on until 4th August.
Meanwhile the Commission announced that it would be changing the EU’s market abuse rules to deal with manipulation of key benchmarks (and there are proposed new provisions for the proposed regulation and for the proposed directive). No public consultation on this – the deliberations on the main measures are ongoing and have been for some time, and in one sense the changes may seem relatively small. and it allows the Commission to seem to be acting quickly to restore confidence.
“poor rules, poor theory, and poor institutional structure” July 20, 2012
Posted by Bradley in : financial regulation , add a commentFrom Adair Turner’s speech in Manchester. He says we shouldn’t get distracted by individual cases of bad behaviour (although there do seem to have been a lot of those, and not just in the UK). He blames the financial crisis on:
three major policy failures: poor rules, poor theory, and poor institutional structure.
* We had totally inadequate rules on bank capital and bank liquidity, which had been agreed by apparent experts from regulators and central banks across the world; rules which allowed banks to run with levels of capital which we now consider a fraction of that required to ensure a stable banking system.
* We also had a flawed theory of economic stability — supported by many apparent experts in economics faculties throughout the world — which believed that achieving low and stable current inflation was sufficient to ensure economic and financial stability, and which failed to identify that credit and asset price cycles are key drivers of instability.
* And in the UK certainly, but also in some other countries, we had an institutional structure of responsibilities which left an underlap between an inflation-targeting central bank and a rule-driven regulator — with no-one clearly responsible for assessing the big picture risks and no-one equipped with the tools to address them.
These references to “apparent experts” are provocative. But for the future, how will we distinguish between apparent and real experts? There’s not much prospect we will stop looking to “experts” for answers.
He also discusses the problem of how to encourage bank lending to aid recovery. In a way it is not surprising given what is happening in Europe to see a financial regulator thinking about economic policy together with financial regulation (I have just been working on a paper on the situation in the EU which notes this connection) but in another way it is rather new and strange. He says:
The FPC’s ability to consider policy options in an integrated fashion, taking into account central bank liquidity insurance when designing prudential liquidity policy, is therefore peculiarly important in deflationary times.