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