Politicians should be wary of the damage they could do to our regulators’ reputation for independence if they move forward with call-in powers
Independence is a funny old thing. At a national level, it can be won and lost in the blink of an eye. At more prosaic levels, building up independence – and a reputation for independence – can take much longer.
Such is the case with our financial institutions, be they regulator or central bank. Even the whiff of the removal of the Bank of England’s formal independence, as floated by Liz Truss in her leadership campaign over the summer, had markets nervous. After the mini-budget, the Bank was forced to explain repeatedly that an intervention to address dysfunction in the bond markets was not an attempt to monetise Britain’s debt. It was a job done well.
Now this government seems insistent on messing around with the independence of the financial regulator. It appears politicians are set on giving themselves the power to second-guess the regulator on matters of “significant public interest.”
This is cosmetically appealing and deeply counter-productive.
Speak to any foreign investor at the minute and they can list many reasons why Britain is not the most appealing place to stick their cash at the moment – from a predicted deep recession to uncertainty about the political outlook. What they do say is that the independence of our legal system and our institutions seem, to them, safe.
This ‘call-in’ power, even if Ministers promise to use it sparingly, puts that at risk.
It is also inconceivable that this call-in threat won’t slow the regulatory process down. Firms have called on the regulator to become more agile, more responsive, and by and large (amidst the usual frustrations) there is an acknowledgement that the body has become more fast-moving. A call-in would work directly at odds with that – and, as the Bank warned last week, leave regulation at the mercy of the “political wind.”
There is no harm in scrutiny of the regulator. Taking away some of its independence, however, would be misguided indeed.