No more double standards: The FCA must be held to account

Allister Heath

HARDLY anybody has heard of the Roman poet Juvenal these days, which is a great shame. He was the first, as far as we know, to ask one of the central questions of political philosophy: “Who will guard the guardians?”

He was rightly paranoid, arguing that someone must watch the watchmen, those who are entrusted to look after us – such as, to pick one example at random that he couldn’t possibly have conceived of, the Financial Conduct Authority (FCA). The problem, of course, is who will watch those who watch the watchmen?

But Juvenal’s realism is not shared in the current political culture. We tend to assume that regulators are self-evidently superior to profit-seeking capitalists. Unlike the supposedly rapacious bankers, our regulator-kings are thought to be motivated by higher aims: the pursuit of the common good and other disinterested, noble goals. Not for them power or pay hikes.

Needless to say, such a deferential view is naïve in the extreme. Public sector elites mess up regularly, which is something that many left-wing supporters of the regulatory state understand full well in another context: they treat the security services with suspicion, for example, especially when it comes to electronic surveillance. You can get abuses of power and incompetence everywhere, and all human beings are fallible.

In Plato’s Republic, a work that is much better known than Juvenal’s, Socrates claimed that the guardians could be self-policing, but only because they would be made to believe in a “noble lie”. In the real world, this is not so. So it is good that the FCA is currently facing intense political scrutiny; such an extraordinarily powerful regulator must be held to account.

When a big news story about a private firm breaks, the company in question must inform the stock market and not allow its share price to move all over the place as a result of incomplete information; regulators should be bound by the same rules when it comes to their own market-moving policies. The FCA should have rushed out a statement explaining the entirety of its proposed reforms last Friday when it saw that the markets were reacting so strongly. It’s not difficult: private firms do this kind of thing all the time.

But there is a fundamental difference between the FCA’s incompetence last week and the policy decision by the chancellor to deregulate pensions. The latter also wiped billions off the value of insurance companies but it was well handled and was a perfectly legitimate action for him to take. True, there was no consultation – but that helped maintain the integrity of markets. There were no leaks and no rumours.

The announcement that the punitive taxes preventing people from having full access to their pension pots and forcing them to take out annuities were being axed was clean and efficient. Consumers have been liberated; and a market which only exists because of government compulsion isn’t free. The insurance companies are right to feel aggrieved by the FCA’s behaviour – but they shouldn’t complain about the chancellor’s in this case.

Regulators should be held to the same exacting code of conduct as private companies. When they fail, they should be punished in exactly the same way. There should be no more double standards. So George Osborne is right to be stepping in and someone in a position of responsibility will have to lose their job. It may be a cliche to call for heads to roll – but in this case they must.

That is the only way that the private sector – which is observing this very carefully – will be reassured that the same rules apply to everybody. Given how harsh the FCA has been towards many people and organisations – fining them in some cases for rule breaches that are arguably merely technical in nature – a proper, meaningful act of contrition is now necessary to reestablish some trust between regulator and regulated.
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