The City of London was firmly in the spotlight last Wednesday with the speeches given by the chancellor and governor of the Bank of England at Mansion House. Aside from the government’s sale of shares in RBS and Royal Mail, behaviour – or more specifically misbehaviour – in the City was the subject that dominated the headlines.
This very paper headlined on page two “Mark Carney: The age of irresponsibility is over.” Increasing prison sentences for those who are irresponsible, break the laws and commit theft was one of the announcements that we saw gaining a large amount of interest. The message that people took away from the event last week was that the government and the regulators will be showing their teeth more often.
My view is that the threat of prison for breaking rules should be a strong enough deterrent on its own, rather than the scare tactic of an increase in how long you would spend behind bars. If ongoing cases of scandal and foul play in the City result in these sentences – which we have been promised – the desired hope is that this acts as a warning to everyone else, nipping the problem in the bud, rather than acting as a last minute stop-gap solution.
Time will tell whether this will be successful.
Regulation was also the hot topic of the night. Mark Carney said last week that we’ve spent eight years putting the new regulatory system in place and its extension into the fixed income, commodities and currency markets is the latest step. But what the City will want to see is better regulation, not just tough regulation.
To use an analogy, when your house is on fire, you get on and try to put it out. You don’t pause, have a think about how much water you need and where to put it. There wasn’t time to fully think through the implications of new regulations during the financial crisis, when we pulled out all the stops to save the economy. But there is now.
The Bank of England’s Fair and Effective Markets Review has now pushed this work on further as well, and the City gave it a broad endorsement on Wednesday. Meanwhile, the chancellor has set the bar especially high for both the government and Square Mile, in that in five years’ time he wants to see the UK’s financial services industry as the best regulated in the world, with markets of unquestioned integrity and the highest standards of conduct.
Clearly, we still have a challenge on our hands in addressing the perception of the City, especially outside of the capital, where the activities of a minority of bankers have tarnished the rest of those who work in financial services.
But as the chancellor has said before, and I wholeheartedly agree with him, we don’t want the stability of a graveyard. It’s also precisely why we don’t want to simply see tougher and reactive regulation – but smarter regulation that stops the fires from starting in the first place. Hopefully last Wednesday marked the start of this new approach.