12th September 2012

Bonfire of the insanities?

Michael Fallon is a decent man from my experience of meeting with him in March 2010. He is now 60, and served in the governments of both Margaret Thatcher and John Major.

He rightly admits that not nearly enough has been done for business since the Coalition Government was formed and says that: “We’ve got to accelerate and scale up.”

Even Andy Haldane, Executive Director of Financial Stability at the Bank of England reckons financial regulation is too complicated and that the rule book should be torn apart. He is quoted as saying that “complexity generates uncertainty and it requires a regulatory response founded in simplicity- less may be more”.

To this end, Fallon announced this week a radical new “scrap as you go” plan aimed at doing away with (or substantially scaling down) some 3,000 regulations that hamper business by the end of next year.

Financial services cynics will no doubt be shouting with some degree of anger, ‘what about us’, upon hearing of this latest froth and bubble Government exercise?

Mr. Fallon was no financial services expert when I met him but may be now with his ‘time served’ on the TSC. Given the mission statement perhaps he should get a coffee date in the diary with Mark Hoban’s replacement Greg Clark if he is determined to deliver on the statement “I’m re-lighting the bonfire [of regulations]?

Fallon reckons that the current regulatory approach of “one in, one out only limits new regulation, there’s far too much existing regulation: pointless annual checks, box-ticking that small firms have to pay consultants for, repetitive checking of certificates, and more.”

But Mr. Fallon should note that the framework to deal with the tangled web of regulation we and others try to fight their way through already exists and has done since 2007.

It is the Regulators Code, an important document so far ignored by the FSA, and no doubt others too.

The regulators code makes interesting reading, in fact you can access it on our website.

Its aim, well stated in a forward by Jim McFadden MP is to embed a risk-based, proportionate and targeted approach to regulation and enforcement among the regulators it applies to.

The term ‘regulator’ is clearly defined in the code as any organisation that exercises a regulatory function.

This does not apply in Wales, Scotland, and Northern Ireland!

A regulator is not bound to follow a provision of the Code if they properly conclude that the provision is either not relevant or is outweighed by another relevant consideration.

Importantly, the Code does not relieve regulated entities of their responsibility to comply with their obligations under the law.

The code is based on the Hampton Principles and states regulatory activities should be carried out in a way which is transparent, accountable, consistent and proportionate; and that regulatory activities should be targeted only at cases in which action is needed.

The following are among its stated aims and intentions consideration-

• To act as an enabler to economic activity.
• To consider the impact that their regulatory interventions may have on economic progress, including the costs, effectiveness and perceptions of fairness of regulation.
• They should ensure that any decision to depart from any provision of the Code is properly reasoned and based on material evidence.
• Where there are no such relevant considerations, regulators should follow the Code.
• They should only adopt a particular approach if the benefits justify the costs and it entails the minimum burden compatible with achieving their objectives.
• Regulators should seek to reward good levels of compliance by way of lighter inspections and reporting requirements where risk assessment justifies this.
• They should also take account of the circumstances of small businesses, including any difficulties they may have in achieving compliance.

The Regulators code of 2007 has been overlooked by the FSA.

Will it continue to be by the FCA and will Mr. Fallon reference it when building his regulatory “bonfire of insanities”?

It spells out clearly what it is not being applied to the thinking of the FSA to date in establishing financial services regulation.

I have written this week to Mr Fallon on the subject.

Will he conclude that the concerns of so many in our industry at least are not relevant or are totally outweighed by other relevant considerations- a special case for treatment in fact?

Regulation, Panacea Comment