What goes around, comes around

Stephen Haddrill, Director General

It is a quarter of a century since Gordon Brown championed independent regulation in financial services and widely across the economy.  The Bank of England gained autonomy, soon followed by the creation of the FSA.  Ministers took the Government out of swathes of decision-making, whilst also bringing an end to most self-regulation.

Regulators, we were told, would take a more strategic, longer-term view of the development of industries than politicians driven by electoral timetables.  They would be more balanced in weighing the interests of firms and consumers.  The buzz word was de-politicisation.  The cynics pointed out that all of this took the heat off Ministers, but by and large the change was welcomed.

Speaking in the last few days, the Prime Minister has turned this revolution on its head. Politicisation (bad) has morphed into renewed democratisation (good). The Payments Regulator has gone. So has NHS England. Other bodies such as FOS are under review. Regulatory leaders have fallen. Regulation overall is portrayed as a barrier to innovation and to growth.

What should we make of this?

Regulation needs reform.

Regulators are not as strategic as was once envisaged by their creators.  To be fair, this is a difficult challenge.  We live in a democracy.  Public officials cannot and should not be insulated from public opinion.   But they must do better.

Nor are regulators wholly balanced. Their culture and sheer size get in the way. If any organisation starts from a presumption that there is wrong to be righted, it will not trust markets and will be over intrusive. If it has thousands of staff, that intrusion becomes a barrier to market growth.

If the goals of strategic thinking and balance are not delivered,  why not cut out the regulators?

We should be careful what we wish for.  International capital likes a predictable environment. The somewhat ponderous nature of regulation delivers a kind of certainty. In the main, regulators are consistent in how they treat firms. Consumers are better served today than in the last century, and regulation has been part of that.

So, what needs change?  The FLA’s list is straightforward.

Topping that list we must create a business environment founded on certainty. Firms that follow the rules should be protected against the excesses of the compensation culture that is currently growing unchecked and impacting UK business. Remove the triple whammy of courts, regulator and ombudsman all pursuing their own paths.

Promote innovation. Use reform of the Consumer Credit Act to create a new environment that incentivises innovation and makes its promotion a regulatory obligation.

Rebuild financial inclusion. Require regulators to make it their goal to extend customer access to markets whilst also promoting fairness.  Limiting access so that markets can only serve only the better off, as has happened in the consumer credit market, is regulatory failure.

Change requires new regulatory cultures.  Only strong leadership will push cultural change through organisations. And those organisations should be shrunk drastically to ensure prioritisation and rewarded when change is achieved.

These are goals for Government and Regulators working together.  Independence in regulation has its place, particularly in relation to decisions about individual firm behaviour, on which politics should not intrude. But on policy and the creation of a coherent and consistent environment for business and consumers, this is not a time for a blame game but for shared endeavour.