View more on these topics

Regulation risks

Gordon Brown admits to errors but he could make more.

In a recent TV interview, Gordon Brown admitted to making mistakes in regulating the financial industry. He confessed that, while Chancellor, he wrongly bowed to pressure placed on him by industry participants to relax regulatory controls.

Brown acknowledged that, instead of agreeing to ease the degree of supervision, he should have insisted that financial institutions be regulated even more and his failure to do so contributed to the financial crisis.

It is not often that a politician admits personal responsibility, and this could indicate that further regulatory change is afoot. But although an apology is welcome, does it provide a solution? The Liberal Democrats’ Vince Cable does not think so: “It is not enough just to hold your hands up and say sorry without having a plan for making sure that the same thing does not happen again.”

The opposition parties and Brown’s critics have made it clear they see him as a weak leader and so this admission without plan for improvement does not exactly dispel that image. In the interview, Brown explained: “All the complaints I was getting from people was, ’You are regulating them too much’.”

He cannot really win. In the 1990s, Brown’s critics complained that he was overregulating so he cut back, ironically, he is now accused of giving the financial institutions too much freedom, culminating in crisis.

It is difficult to strike a balance between protecting consumers and appreciating the importance of maintaining a free market. In Labour’s election manifesto, they claim “there will be no return to the excesses of the past – banks will face tighter regulation”.

We have already seen evidence of this tighter approach to regulation by the FSA but, in taking a tougher line, the Government should be aware of the risks it faces in undermining the free principles on which our financial industry is based.

In the interview, Gordon Brown insisted that “you do not listen to the industry when they say, ’this is good for us’. You have got to talk about the whole public interest”, but if he fails to consult industry participants in making any future regulatory decisions, the result will not be any more successful than in the past, and he will fail to strike this important balance.

The FSA’s principles of good regulation include the need to encourage and facilitate competition in the market. If Brown ignores the views of the industry and imposes excessive regulation, he also runs the risk of dulling economic diversity in the UK.

Until now, the Prime Minister has fervently denied responsibility for the financial crisis, choosing instead to place the blame on international and, particularly, on American regulators. So, what has changed? Throughout the interview, Brown claimed to have learned from his mistakes, so it seems that in anticipation of the impending election, he is hastily trying to convince the county that he will do better next time…if there is a next time.

Suzanne MacDonald is partner and head of financial services regulation at law firm TLT

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

There are 3 comments at the moment, we would love to hear your opinion too.

  1. Julian Stevens 4th May 2010 at 3:17 pm

    “All the complaints I was getting from people was, ’You are regulating them too much’.”

    By “people”, of course, he means the “people” at the Banks, because nobody takes any notice at all of cries from the IFA community that we’re being over-regulated (and over-charged) out of existence.

    If you want to avoid another fire, you don’t put the arsonist in charge of fire prevention, do you?

    And once again, we see yet more evidence of close links between government and regulatory policy, despite Hector Sants’ claim on national TV that the FSA (fsa.gov.uk) is entirely independent of government.

    Even if that were true (which patently it isn’t), the alternative state of affairs that would present (given that the FSA totally ignores the Statutory Code of Practice for Regulators) is that the FSA is answerable to nobody. Which is worse?

  2. the warnings signs for bank regulation were there from BCCI, nothing was done and the banks were more or less left to sort out their own, but considering the people running them were Old school tie, public school, fatcats, who probably fagged for each other at school then there was no way this was ever going to happen.

    Brown was naive to believe this was ever going to happen, it’d be like him believing that he was going to become lifelong patron of the Rochdale labour club

  3. The Banks were left to self regulate. they are the worst type of old boy nextwork.

    this was bound to happen

Leave a comment

Close

Why register with Money Marketing ?

Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

News & analysis delivered directly to your inbox
Register today to receive our range of news alerts including daily and weekly briefings

Money Marketing Events
Be the first to hear about our industry leading conferences, awards, roundtables and more.

Research and insight
Take part in and see the results of Money Marketing's flagship investigations into industry trends.

Have your say
Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

Register now

Having problems?

Contact us on +44 (0)20 7292 3712

Lines are open Monday to Friday 9:00am -5.00pm

Email: customerservices@moneymarketing.com