The first few weeks of Liz Truss’ administration have seen the City dominate newspaper front pages and TV in a way not seen since the financial crisis of 2008. That does not look set to change. 

Having removed the cap on bankers’ bonuses, the Chancellor has promised an “ambitious package of regulatory reforms” later in the Autumn. At the Conservative Party Conference, Jacob Rees-Mogg reasserted this, suggesting that the post-Brexit Financial Services and Markets Bill, currently moving through Parliament, could be amended to include a merger of the FCA, PRA and PSR.

As a business leader in the financial services industry, I welcome the new government’s focus on regulation. If the government is serious about growth and reaffirming the UK’s status as the world’s financial services centre, reform is vital. Too much regulation has been holding back too many businesses, particularly small-to-medium sized enterprises.

Here’s my advice to Truss and Kwarteng as they look to take the handbrake off for Britain’s financial services sector.

First, you need to decide what you want your outcomes to be and work backwards from there to design a system that produces the results you want. What are the government’s priorities? Do we want to encourage innovation, protect consumers, promote savings, crack down on bad actors, or, as is likely, do all of the above?  Perhaps the better way to look at things is: what problems do we want to solve?

To pick one problem, our savings levels are too low. This is saving up problems for individuals and pension providers longer term. But the lack of savings has also hampered the attempts of ordinary Britons to protect themselves against the rampant inflation we’re all experiencing. The country would be in a much better position to weather the present storm if we had incentivised more people to save in the years since the global financial crisis.

Perversely, and somewhat apropos, a lot of our current savings malaise originates in a decision financial regulators made in 2013 during the aftermath of the global financial crisis. The “Retail Distribution Review” banned financial advisers from receiving commission on investment products. Instead, clients who want to seek the benefit of expert financial advice have to pay the adviser themselves. The result was that millions of savers with smaller amounts to invest were priced out of the financial advice market. A client with £1,000 to invest may not want or be able to pay an adviser hundreds of pounds. The problem was the same for advisers. They typically want to see their client annually on an annual fee. The norm in the advice industry is a 1% annual charge, although at True Potential, our advice fees are much lower, at 0.5%. If the client invested the same £1000 the adviser would receive £50 from the client. Once again, it’s easy to see how the rules have incentivised advisers to work with clients who have hundreds of thousands to invest, leaving those with smaller pots to fend for themselves.

In their rush to clamp down on bad actors, regulators removed the incentives many small financial advisory shops had to encourage savers with small pots to begin investing. As a result, financial advisory firms increasingly catered to those higher up the wealth tree, leaving people desperate to save with little access to sound financial advice and a growing savings gap.

At True Potential, we’re turning the tide with a financial advice service aimed specifically at those with small pots and looking to set off on their investment journey. But we need more firms and smarter regulations to support this effort and get the UK saving.

When regulations change a lot the  baby often gets thrown out with the bath water. And this is where my second piece of advice comes in.

Because our regulatory systems have become unimaginably complex; even the regulators often don’t know which bit of regulation is attached to what other piece, leading to a scenario when a pulled thread unravels the entire regulatory garment.

It’s a similar situation to the gargantuan tangles of web code layered up over time by app builders; each step makes sense on the way there but, when looked at retrospectively, the system doesn’t appear to make any sense.

That’s why our firm tears down its tech with each iteration; instead of adding to code, we rethink, redesign, and recode, all with the view of serving the client better and solving their problems.

This, more than anything, is the approach Truss should take. Instead of fiddling on the margins, or trying to untangle a web, she should commission a better web, one that promotes the positives, while protecting against the negatives and perverse incentives that little the current statute book.

The author is Chief Executive of True Potential, a financial services organisation.

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