7th May 2013

Can somebody translate this FCA statement please into plain English?

A few months ago we highlighted concerns that regulation and the various diktats and tomes that accompany it would benefit from being put into plain English. 

So when we saw this “Behavioral biases can render regulatory interventions aimed at addressing information asymmetries harmful" heads were banged on desks!

As many of you will know, we have some interesting discussions off site in various Linkedin groups and I thought it was worth sharing the above one, on this very topic with you, along with the comments so far.

Your views may well differ, if so, we would like to hear them too. In regulation understanding is everything and the starting point is guidance in plain, easy to understand non-“newspeak” English. 

The English language today is being highjacked by some crazy versions of "newspeak" and this was a prime example of it. 

We live in a society where we no longer have snow drifts - we have accumulations, we no longer have rainfall- we have precipitation, we no longer have fire brigade or ambulance- we have first responders, we no longer have customers- we have consumers. Grrrrr

Post your thoughts in the box below. 

Comments so far as follows: 

Mike Oliver Associates • Yes minister...           

Eugen Neagu ACSI DipPFS • I can give you an example of information asymmetries: firms claiming that they manage the risk, when actualy there is no way to manage risk and forecast the future. Not only that, but in equity investments we don't deal with risk but 'uncertainty' that can't even be meassured, not to say managed. Obviously diversification can reduce for a bit the uncertainty but claiming that you manage the risk is a bit too much.

As a result of presenting this type of information a client will invest in equities when otherwise he would have not. This type of presenting information could require the FCA intervention.

Do you want another one: efficient portfolios and efficient frontier. There is no way to determine which will be the efficient portfolio for the next 12 months or next 5 years using historical data, expecialy now when gilt yields are so low. The word 'efficient' creates a bias. In reality researching 'efficient portfolios' produced by different firms you find huge differences and it is clear these portfolios can't be all 'efficient' in the same time.

I welcome the paper, it puts the FCA in front of its time. 

Andy Heath • That's a bit difficult, out of context. Certainly 'harmful' would be better placed after 'render', but that doesn't much improve overall understanding. 

I think it might be paraphrased as 'Apples with apples is preferable, though not everyone wants to play that game, and it might be counter-productive to try and enforce it.' Equally, quite possibly nothing like that at all... 

Graham Bentley • There is some predictable anti- regulator bias showing. The FCA Occasional paper is to be welcomed. It recognises psychological biases not only in customers (which can be unscrupulously taken advantage of), and advisers (likelihood of misinterpreting information depending how it is framed, and then being hauled over the coals for it unnecessarily), but also in the Regulator. The latter point recognises that intervention (eg mandating 'too much' information and hence making customers and advisers even more confused) can be counterproductive. It also suggests the FCA (or at least its economics office) recognises that sometimes customers may only have themselves to blame. Don't take a sentence in isolation...read the paper.

Chris Greenway • Isn't "information asymmetry" another way of saying "lies"?
In which case, I think this mean "business that are most resistant to intervention from the FCA have the most to lose from telling porkies".

It's English, Jim... But not as we know it...           

Derek Bradley | Panacea Adviser • Some great points all, thanks. But despite the plus sides of this latest 'tome' I think that it is time for the FCA to just talk and write in plain, easy to understand, easy to in fact not understand English.  

Graham Bentley • Just to clear up...information asymmetry is NOT lies. It's an economics term (it is an economics paper and not a regulatory paper) that refers to situations where two parties to a transaction have very different levels of information available to them, and the harm that can cause. This is not newspeak, but terms well understood in the fields to which it refers. The need to oversimplify can itself lead to misunderstandings. One might not understand economics or psychology, but that doesn't invalidate their statements... 

Andrew Watts BSc APFS CFP • Spot on Derek. It doesn't matter what it means, the point is it is difficult to understand.           

FSA/FCA, Panacea Comment