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A Very Personal Confession ... I Love Regulation

Last week I was with yet another banking customer, discussing innovation in payments.  Another presenter brought up the obligatory slide with an update on payments and banking regulation, and the cost thereof.  And as it so often happens, everyone in the audience pulled out a subdued and slightly tired smile.  Oh, yes, we know.  Regulation is a bitch.  Overly expensive. What are you going to do?  It’s mandated by government.  Let’s move on.

Of course I agree.  For example in the UK, the biggest banks and insurers must now pay annual fees of £257.8m to fund the BoE’s Prudential Regulation Authority, which ensures the safety and soundness of the companies. This is a 4 per cent increase on the £246.8m needed in the 2014-2015 financial year.

And yet, whenever the cost of regulation comes up in meetings, I always think back at a personal story I lived through.  In order to protect identities I have changed some details slightly.

In 2000, at the moment of the burst of the dot-com bubble I lived in a small province town in Belgium.  A small business owner in that town had invested all of his savings with one bank, in one and the same fund.  Overnight, he’d lost every last cent of his savings.  Stupid?  Undoubtedly yes.  But the guy had only followed guidance from the bank’s sales rep who had told him that ‘this could never go wrong’.  The small business owner couldn’t handle the shame, and committed suicide.

I had never met this person, and read the story in the local newspaper.  Yet, as I started working in banking, the story stuck with me.

Some months ago, I was talking to an elderly man who had recently been approached by a salesman from the identical same bank about succession planning.  We’re talking high-street, tier-1 international brand here.  The elderly man was so happy that he had found an honest sales rep that he could blindly trust.  The bank’s sales rep had proposed an investment product that had “no conditions at all”, there was no step-in fee, revenues would be untaxed, and the children could freely re-invest the inherited money in any financial product whilst the father would still receive interest on that same money. 

This made me shiver.  Really?  In 2015?  A fully unregulated investment product?  I asked the sales rep to tell me all about this marvelous product, and I got the same pitch.  Over the phone.  When I asked him to put this lack of conditions in an email, I was sidelined, and I wasn’t asked for input anymore.

Of course, the investment product turned out to be a fully regulated branch-21 product, and the family signed a safe investment, still blindly trusting the sales rep.

More than 200 years ago the second President of the United States, John Adams, wrote: “All the perplexities, confusion and distresses in America arise not from defects in the constitution or confederation, nor from want of honor or virtue, as much as from downright ignorance of the nature of coin, credit, and circulation.” (*)

Sure, but as long as sales reps of ‘reputed’ banks aren’t too bothered about ripping off the small business owner or the elderly man, let’s love regulation a bit more.

(*) Thanks, Richard Walker from London Walks for leading me to this wonderful quote.

The views expressed on this blog are my own and do not necessarily reflect the views of Oracle.



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This post is from a series of posts in the group:

Innovation in Financial Services

A discussion of trends in innovation management within financial institutions, and the key processes, technology and cultural shifts driving innovation.

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