One of the frustrations that my colleagues in the accounting profession and I – and indeed everyone I come across in business – face, is the increasing burden of regulation. It does not matter whether this is in relation to the running of our own business – that of a Chartered Accountancy practice – or when I have to spend a disproportionate amount of my time advising clients how to comply with endless pieces of legislation.
I am sure you know what I am talking about – Money Laundering Regulations, Financial Services Act, Insolvency legislation, Health and Safety at Work, Working Time Regulations, etc. According to a recent piece in the Financial Times, 82 new pieces of legislation took effect on 6 April and 59 on 1 October!! David Cameron, in his recent speech at the Tory Party Conference, raised this as a major issue facing the efficiency of the country.
The question is this: Is anything going to change? – Is it a matter of too much red tape or just the wrong type?
What do I mean by that?
Let’s take Insolvency Legislation as an example. The major change in law took place in 1986 with the introduction of the Insolvency Act which has been supplemented by subsequent legislation. The main thrust of the legislation was to improve the procedures when companies or individuals have financial difficulties and to protect creditors. The measure of any legislation is the success or otherwise of achieving its aim.
My experience with insolvency legislation is that, unquestionably, the options available for companies and individuals suffering difficulties are wider, with administrations, CVAs, IVAs, etc., but creditors are no better off and it is always the smaller companies that suffer. – So no real improvement there!
As another example, what about Financial Services? The first major assault on this area was the 1986 Financial Services Act and this, too, has been superseded by rafts of legislation.
There is no doubt that legislation was necessary. Many people had been sold the wrong policies or given incorrect advice by commission-led ‘foot-in-the-door’ salesman. However, it was very much a case of a sledgehammer to crack a nut. There were undoubtedly many large financial scandals but what has happened since the legislation came in?
Firstly, many genuine financial advisers went out of business either because of the costs of complying with regulations ( principally the need to register with various authorities and undergo compliance checks) and the need to have expensive insurance.
Secondly, the attack on commissions as the basis of remuneration for financial advisers also led to their demise. This was because many individuals began to believe that there was something inherently wrong with a commission system. Our experience here was that when offered the choice between paying a fee, or simply a commission if a policy was affected, 99% of customers opted for the latter.
What then happened was that the larger institutions, principally the banks, developed their own in-house financial advisory divisions and marketed them heavily. Instead of getting independent and objective financial advice, many individuals were ‘sold’ inappropriate policies by the banks.
And have the financial scandals been reduced because of the legislation? Just read the present newspapers. Banks, building societies and investment houses were doing all sorts of sophisticated things with our money and once again it is the ‘ordinary’ citizen who suffers.
Much of the legislation we are faced with today is necessary and makes good sense. But it is misguided and it generally damages the vast majority whilst doing very little to protect against the wrongdoings of the larger organisations. So I do not think that we have necessarily too much red tape just the wrong sort!