Why City’s regulator has no business to be smug

THOSE who sit in the splendid offices of the Financial Conduct Authority out in booming Stratford, East London, are probably feeling a little smug this weekend. More smug than usual, I suspect.

This rash of extra smugness from the Financial Smugness Authority follows the warmish reception given to the regulator’s plan to shake up the cash savings market with the introduction of the all-singing, all-dancing ‘single easy access rate’.

This initiative, it boasts, will ensure the market gives more savers, especially inactive or loyal ones, a better interest rate deal in the future.

This new rate (the SEAR) will have to be offered on all easy access cash savings accounts and all easy access cash Isas – and will automatically kick in after a saver’s account has been running for a year.

It will be set by individual banks and building societies without any guidance from the regulator other than the fact that providers will be allowed to have a different SEAR for their non-Isa and Isa easy access offerings.

So two SEARS per savings institution with the rates left to providers to determine. Other than a requirement to publish details of their SEARS every six months, that’s about it.

The idea, in theory at least, is that it will stop savers from being enticed into an easy access account on the back of an attractive introductory (teaser) rate, only to be transferred on to a parsimonious rate thereafter.

The regulator hopes SEARs will improve the lot of the saver by increasing competition as savings institutions look to keep savers beyond any introductory period. The higher the go-to SEAR, the more chance a provider has of keeping a customer’s business.

It should also mean a better deal for many long-standing savers as they benefit from SEAR.

So, proposals for the regulator to feel good about? Yes, but let’s not get too carried away.

For a start, the financial benefit of these proposals to easy access savers – based on the regulator’s own figures – works out at a minuscule average £6.50 a year in extra interest (hardly enough for a good bottle of wine).

Furthermore, the new rules are unlikely to kick in until the start of the tax year beginning April 6

2021 (at the earliest). They have also taken far too long – some 18 months – to be formulated following the publication of a discussion paper on the issue in July 2018.

This time lag was presumably because of arguments at the regulator over whether to call the new go-to-rate BSR (basic savings rate) as originally planned or plump for SEAR. Of course, SEAR triumphed.

Although meritorious in theory, my suspicion is that the big banks will ensure they do not lose out from this regime.

While most long-standing savers may win a little, the banks will recoup these interest payments from other customers – either by lowering introductory savings rates or tickling up mortgage rates.

For savers, the best advice comes from Anna Bowes, of rate scrutineer Savings Champion. ‘The only way for savers to better their lot is to take an active interest in their cash savings and chase best rates at every opportunity.’ SMUGNESS is not a word I would use to describe the regulator’s role in the ongoing Woodford investment debacle. Embarrassing, ineffective (utterly so) and inept instantly spring to mind.

The regulator has been found wanting and it is no surprise that some people in the City are now calling for it to be probed for its failure to protect investors from Woodford’s egregious investment decisions and greed.

In the past few days, the 300,000 investors trapped in Woodford’s Equity Income fund have been told that they will have to wait a little longer before they receive their first payment from the fund’s break-up – the end of the month, maybe even later.

This comes hard on the heels of news that Neil Woodford and sidekick Craig Newman sucked £13.8 million of dividends from their investment business in the year to the end of March 2019.

A period during which Equity Income was teetering on the edge of financial catastrophe.

The regulator’s response so far? Nothing. Both scandalous and unacceptable.

Move aside Financial Smugness Authority and step forward the UUFCA – the Utterly Useless

FCA.