Other People's Money 

It seems at times as if the way in which the Media handle the big issues of the day is designed to shut down critical thinking, and even the slightest vestige of dissent.  You know the kind of thing - a roomful of pundits and journos talking enthusiastically about 'X' as if the whole thing was so proven, or evidenced, or accepted by the real experts, that you'd be a complete luddite to think anything else.  Most of us respond by self-censoring, whilst still entertaining uneasy feelings about the whole idea.

Those 'uneasy feelings' perform a valuable function, and we should take them seriously.  This happens when one talks to members of the public about the way in which the UK's financial regulatory system actually works.  Discuss how the FOS and FSCS operate in practice, and you see lower jaws drop to such an extent that you could drive a large truck through the gap.  And that's because most of us do retain innate ideas of fairness or justice, and it's not that difficult to spot contexts where those kinds of values are conspicuous by their absence.

So, the FSCS has announced that it has run out of money, again.  You can read all about it, here.  On one level, this could be seen as one of those 'Nothing to see here, folks...move on' moments:  after all we have been through this same sequence of events year, after year, for almost as long as one can remember.  It is worth reminding ourselves sometimes that this system of regulation has a lifespan of around twenty years, so the propensity of a certain category of organisation to feel that it has an automatic right to access your chequebook did not always exist.  There was a time, perhaps lost now in the mists of prehistory and legend, when you paid for your own misdemeanours, rather than everyone else's.  I know, I know:  it's a crazy idea.

Nevertheless, it's that time again when the FSCS needs to dip into our bank account.  Because it can, and because it has run out of cash.  It needs an extra £92m to keep going, of which it looks like £28m will come from firms such as ours.  I'm sure that it will give all of us a warm glow inside to learn that the FSCS's CEO has acknowledged that this might be "unwelcome news" in the current climate.  Of course, neither the climate, nor the impact of this on struggling firms will hinder in any way the practice, because this is the absolute beauty of Other People's Money (OPM).  In effect, the entire regulatory system is propped up on the central concept of OPM - completely gone is the idea that one might pay for one's own costs, one's own consumption of services, one's own regulatory needs.  It is OPM that allows the apparently untrammelled expansion of the regulatory apparatus, and of course OPM is the comfort blanket that the FSCS snuggles up to whenever it feels the need for more cash.  So long as OPM is used in this way by the ruling classes, the UK financial services industry can not, in all honesty, describe itself as a commercial venture.

Those of us who stubbornly insist on living in the Real World, know that when the money is gone, it's gone.  We're used to the disciplines of working within very precise budgetary constraints, and we know that if we do not, it's all going to end up in tears.  Since the advent of regulation, those constraints have got tighter and tighter over the years, but we respond by means of a continual fine-tuning of our fiscal disciplines.  These are the kinds of tools used by responsible commercial entities, and not, apparently by the FSCS because that safety blanket of OPM is always there.

Nevertheless, even at this time there may be the odd, isolated spot of encouragement contained within FT Adviser's article.  One such is the admission by the FSCS' CEO that "there is no silver bullet and regulation alone will not solve this complex problem."  For most of us, this may be a statement of the obvious, but it is, in a perverse way, somehow comforting to hear someone at that level within financial services regulation articulating the self-evident truth.  Given the sheer monumental cost of regulation as a 'solution', we would have expected it to have worked, if it was in fact a viable answer to whatever the problems are that justifies its existence.  One wonders at times, if regulation could ever work, even if it absorbed the entire gross national product of the UK's financial services industry annually.

Perhaps I'd better not suggest that as an idea...


Kevin Moss, 25/11/2020