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Do senior managers in financial services have a legitimate complaint when it comes to being overwhelmed by regulation? Or, as Frank Hore and David Low FRSAs argue, is something else going on and what can be done?

If you wanted to have a pop at the financial services sector, you would have to take your turn at the end of a very long queue. We all want a flourishing economy; and we know we need able-bodied insurers and banks to help make it happen. But at the same time, we just cannot help hurling rotten fruit: it’s a heart-rules-the-head thing.

It could be that the UK’s recovery is being hindered by another ‘heart-and-head thing’ happening inside those very organisations. Over the last couple of years, we have met an alarming number of senior people in the financial services sector struggling to manage their day jobs. They seem to have little enough time or focus to cope with today’s ‘business as usual’, let alone the future of their organisations; and they put it all down to the time they are forced to spend implementing the demands of their regulator.

Is it true? Regulation is supposed to be there to give us confidence. It is there to protect consumers and to reassure markets that key companies, critical to our economy, are not going to fall off a cliff. But it seems that there is every chance that managers are being frozen in the headlights of regulation; the very same managers whom our economy depends upon to rebuild their organisations – restructure their industries, even – as a prerequisite to the UK’s recovery.

If it is true, is the same thing happening elsewhere: in Europe, say? And if so, is this a problem created by poor management, such as the misallocation of resources? Or is it simply griping? You could reasonably expect negative reactions from people whose priorities are being set by a third party. Particularly as their organisations try to come to terms with their pariah status in the media. Morale is not going to be the bounciest when your sector, your bank, even, has played a significant part in bringing the world economy to its knees. So perhaps all we are witnessing is biters bit?

We have got to assume that the regulator knows their stuff. Surely the volume of activity that it has been demanding – systems and procedural changes, training and communications and their knock-on implications – could not alone be responsible for the extreme reactions we have observed in insurers and banks? They call it a ‘firestorm of regulation’; they say it is taking over their agendas, their lives. We start a conversation and try without success to talk about anything else. We talk to distribution directors who do not have space in their heads to talk about distribution!

So, could the drive for regulation itself bring about the effect it’s trying to head off? If regulation and management is sound, what is it that is taking over such a frightening slice of general management’s mental energy?

The work of Wilfrid Bion, an early pioneer in the field of group behaviour, might cast some light here. Among other things, his experiments led him to believe that many ‘dysfunctional’ groups work to an unspoken, covert agenda; one that every member signs on to subconsciously.

One of these classic ‘agendas’ is flight-fight, whereby everything the group does is subconsciously driven and shaped by keeping an enemy outside the gates, or running away from it. It is a defensive reaction to a perceived threat; and typically the threat could be posed by head office, or a tough personality… or a regulator.

One of the problems that this ‘hidden agenda reaction’ poses is that it can permeate an organisation and colour the way people behave (perhaps people completely untouched by the ‘threat’ as it were). It becomes a basic assumption behind thoughts and actions: a given, an accepted backdrop. ‘The task’ then takes a very secondary place in people’s minds, which become filled with worry, gossip and politics.

The crash alone, I suspect, could have created excellent conditions for stress and uncertainty to thrive in the financial services sector. It prepared the way for systemic paranoia, and remember, just because people are really out to get you, does not mean you cannot be paranoid. But if that were not enough, many, many organisations these days have already been through the mill: increasingly over the last 10 years or so, we have encountered organisations which have experienced so many knocks – via restructuring, mergers and acquisitions upheaval, applying for own-jobs and so on – that their capacity to accommodate further change is severely constrained. People have become more fragile at a time when we are asking more and more of them.

We imagine that it would not take very much these days for a regulator’s pronouncements to overwhelm an entire industry; not simply by the physical demands they make but by the impact that their demands may have on organisational behaviour. Here is the paradox: the harder the regulator drives to eliminate risk, the more risk it could be driving in.

So what is the way forward? Well, not to leave it to the organisations themselves to get on with, clearly. For regulators to work more supportively, learning some of the lessons that OFSTED are beginning to put into practice. To act in a quasi consultancy manner, pacing their input without pushing organisations too far beyond their capacity to cope. To watch for symptoms, and not take comfort from boxes ticked. But above all, to understand who you are dealing with and what makes them tick.

This is not an argument against regulating insurers and banks. Like everyone else in the queue, we want to see a healthy sector. But there are some sinister symptoms emerging and the last thing we want is treatment that leaves a dead patient!


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