A SENIOR Bank of England official last night hit out at the complex mass of regulations being layered onto the City, urging his peers to rip up the rule book and start again.
Andrew Haldane, who sits on the Bank’s immensely powerful financial policy committee of regulators, said that the rising flood of red tape is counterproductive and called for a King Canute-like attempt to push back the tide.
“This could transform the regulatory framework, for the simpler, for the better,” Haldane told an audience of lawyers at the International Financial Law Review awards in London.
“Unlike the seas, this complex tide is ours to turn.”
Comparing the increasing layers of financial regulation with the UK’s ever-expanding tax code, Haldane slammed such complex frameworks as “inefficient, ineffective and inequitable.”
“They advantage those best able to exploit the cracks, navigate the uncertainty, squeeze through the loopholes – this tends to be those with the deepest pockets who can afford the most sophisticated risk-modeller, the slickest tax accountant,” he said, describing complexity as “like a regressive tax. That is why big banks typically hold far less capital than smaller banks even when their underlying exposures are identical.”
Over several decades regulators have reacted to problems that emerge, papering over cracks one at a time, explained Haldane, who has previously clashed with the Bank’s incoming governor, Mark Carney.
“This evolutionary path leads inexorably towards a framework – whether regulatory or tax – which is a patchwork of make-do-and-mend. History locks in the idiosyncrasies and complexities of the past, generating a steadily rising tide of red tape.”
Legislation over the City has grown from the 75-page Banking Act in 1979 to the 534-page Financial Services Act of last year, Haldane noted.
“In the UK in 1997, Tolley’s Tax Guide ran to around 5,000 pages,” he added. “By 2009, it had reached over 11,500 pages; just two years later, 17,795 pages. That is a threefold rise in less than 15 years.”
The growth in regulation and tax complexity is costly for society and has created a “steadily-rising standing army of regulators and compliance officers,” he added.
“In Europe, the cost of implementing Basel III is estimated at over 70,000 full-time private sector jobs. As these resources might otherwise have been profitably deployed in other industries, these are deadweight opportunity costs borne by society,” the Bank official said.
RISING TIDE OF RED TAPE
IN THE UK...
1979 Banking Act: 75 pages
1986 Financial Services Act: 106 pages
1987 updated Banking Act: 299 pages
2000 Financial Services and Markets Act: 321 pages
2012 Financial Services Act: 534 pages
AND IN THE US...
1933 Glass-Steagall: 37 pages
2010 Dodd-Frank: 848 pages