This week’s speech by the FCA Chair [see link] is rich with content and well worth a read. This blog only looks at one part of the ground he covers - the ebb and flow of deregulation - chiefly in the context of the financial crisis and Brexit. However, I’ll come back to others, notably policing the perimeter, another time…
When approaching this dynamic ebb and flow, it’s important to understand what’s really going on. Throughout the FSA’s 15 year life, for example, there was a strong tide of deregulatory fervour across both main political parties. To give just two examples:
- “The Leviathan at Large” by Martin McElwee and Andrew Tyrie MP [Centre for Policy Studies, 2000] was a strong critique of the FSA and of regulation.
- In June 2005, Tony Blair made a speech attacking regulatory red tape that was widely seen as having the FSA in its sights.
What changed during these years, therefore, was not so much that the deregulatory tide grew in strength as that the confidence of those who believed in the overall benefits of thought-through regulation receded.
This confidence, fuelled by the flaws exposed by the crisis, then grew again, roughly between 2009-13, when the bulk of the regulatory response to the crisis was put in place. Since then, however, it has gradually waned, even as the work to finalise and implement the new regulation continued.
In this context, it’s also worth noting that a significant chunk of the new regulation has its roots pre-crisis. MiFID II, for example, as well as a response to the crisis, is also part update of MiFID I and part scope extension to cover new technology - few of the relevant timelines are short enough for the regulation to be pigeon-holed.
During this period also, there was a series of broadly deregulatory initiatives by different governments, including the creation of the Better Regulation Executive and the attempted “One in, two out” rule in respect of new regulations. So the overall context of public policy has always had a deregulatory side to it.
There is undoubtedly a debate to be had about the purpose and place of regulation, but it should be a proper debate, covering all sides of the argument. There is a strong case to be made in favour of modern regulation but it is not often heard.
Regulators themselves have typically either stayed at the level of their statutory objectives or have defaulted to individual reforms, each justified in their own terms. As a result, the ground between has often been left vacant, to be filled by those who want to deregulate.
It is therefore an important step, especially pre-Brexit, for the FCA to begin stating the arguments in favour of good regulation. Finding the right balance, and building a consensus around it, is in firms’ interests as much as consumers.
The cycle of deregulation, crisis and regulation is particularly damaging. The most important way to avoid a damaging cycle of deregulation, crisis and regulation is to keep an open mind about the shortcomings of our existing rules.