The greatest compliment a football fan can ever give a referee is that they ‘let the game flow’ and try to avoid blowing their whistle except when absolutely necessary. Financial regulators sit broadly within the same definition.
So it is with some regret that just a few years after we went through a post-crisis reorganisation of the City’s watchdogs, the prospective and indeed probable next Prime Minister apparently wants to have another go at making the referee the star of the show.
Liz Truss, according to reports, will commission a review of the three City watchdogs – the Financial Conduct Authority, the Prudential Regulation Authority and the Payments Systems Regulator – with a view to creating a super-sized Square Mile referee. Such a move would be, per reports, a key plank of “waging war on technocrats.”
Let’s be clear: no regulator is perfect. But it is hard to imagine a more aggressive waste of everybody’s time than a widespread reorganisation of regulators – not least when the biggest of the lot, the FCA, has already been through the painful process of restructuring pay and resources to make it fit for the future.
There are good technical reasons to leave well alone – as former Treasury advisor and architect of the current system Rupert Harrison said, it is dangerous to mix (long-term judgement-based) prudential supervision and (short-term rules-based) conduct regulation. Much of the rest of the world has copied the UK’s current system. Similarly the FCA’s secondary objective to consider growth is so new that the ink has barely set, and it’s impossible to know what the impact of that potentially revolutionary change might be. And the City watchdog’s regulatory sandbox has been a key part of the UK’s fintech success, so again, what improvements would a reorganisation offer?
Post-Brexit, the Square Mile is craving clear direction as to its regulatory future. Such clarity has not been forthcoming from Whitehall. Embarking on a years-long merger of the watchdogs is unlikely to clear up the picture.