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Pressing matter

The News of the World phone-tapping scandal may well result in statutory regulation of the press. The skulduggery and shame being paraded publicly mean that there will be little resistance to the basic demand of public opinion that “someone sort this out”.

In such situations, that someone must be the Government of the day. As a result, we can no doubt expect a press regulator to emerge. I would expect its powers to be very wide ranging, but initially relatively weak, though crucially it will be able to make and adapt rules within a broad statutory framework that its appointed leaders will be charged with interpreting.

I remember well just such a time in financial services. The 1980s were a period of huge growth in the sector as the City boomed and financial stories moved from the business section to the front pages. Played out against a backdrop of high unemployment and confrontational politics, a succession of what we would now call misselling scandals produced the same mood, albeit one with far fewer juicy bits. Regulation seemed, to me too, a sensible step, particularly the light-touch version that the statutes envisaged, based on the Bank of England’s success in regulating markets as one would membership of a club and all aimed at increasing confidence in the financial system.

But that lasted a matter of months until one particular scandal forced the Government to concede that its new regulator had failed the people. It paid out around £100m and the taxpayer funded compensation made the Treasury demand that the then regulators grow teeth and ensure this could never happen again.

That is how it must go. What starts as a cry for Government to sort foul things out, creates a new body, led initially by those who know the original problem best, but eventually by career civil servants who know how to manage offshoots of Government best. This body faces regular demands to act in order to stop various abuses and politicians refer decisions to it, so as to avoid making them themselves. It accumulates power to do so, but as the regulator does so, human nature makes something else happen that in time makes it fail the people who called for it – every time. Just like the FSA has, most obviously in the banking sector, but really just by costing billions more over the years than it has ever saved.

That thing that happens is that the regulated begin to frame their ethics by the regulator’s rules. That makes the compliance officer the arbiter of what a regulated business does, not the chairman or the shareholders. And while many compliance officers are over-cautious, there are always some that seek the loophole, as AIG so disastrously did in the sub-prime market. The difference is that regulation gives their inventions legitimacy and allows them to become established too fast to be controlled.

Common sense and clumsy policemen, who can easily be got round and who when they act, must stifle many to stop one, cannot cope effectively with this creativity and in the end more and more rules pile up and the industry shrinks, like some Communist bloc state, into a endless life-sapping battle between the police and the policed.

Welcome to your future pressmen. Despite your current crisis, do fight against it tooth and nail now, or one day the great British press will be as toothless as are our financial services.

Tom Baigrie is managing director at Lifesearch



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