Regulation and a Civilised Society
What are your tests of a civilised society? The way we treat our prisoners? The provision of regular refuse collection (leaving aside precisely what regular means in terms of days)? The efficient working of the U-bend in your house? But do you see the role of the regulator of professional and other services as being a key element in the civilised world as we know it?
There has never been any issue but that those who claim to be professionals and practise a profession must be subject to regulation. Until the latter part of the 20th century the professions have always insisted that they are the only people who know how to regulate their members – self regulation was, I was told as I was growing up in the legal profession, the only right and proper way of professions to be regulated. After all, what did the outside world know of our problems and what the issues were that were raised by the occasional bad apple in the legal barrel? We could all sort ourselves out internally without the interference from third party amateurs?
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However, no doubt led by Jimmy Porter of Look Back in Anger fame we ceased to have respect for professionals just because they were professionals. They had to justify the trust that clients put in them and there was no reason why outsiders could not examine the behaviour of professionals just as easily and just as effectively as the professionals themselves. The Law Society fought a long rearguard, and ultimately fruitless, action to prevent, as the elders of the profession saw it, the thin end of the wedge destroying the civilised world in which they and we were brought up. Eventually Parliament had no truck with the approach of the Law Society and the regulatory world of solicitors has changed dramatically.
Whether of course you equate change with progress and improvement is entirely another matter. However, society is moving away from self regulation and there is not a lot of point in fighting against the new legal regulatory structure especially as it is now enshrined in statute.
Parallel to this movement has been the development of over arching regulators which began with the Securities & Investment Board in the mid 1980s and has now turned into the monolith that is the Financial Services Authority. My concern is, and always will be, encapsulated in the Latin phrase translated as, “Who guards the guardians?” I am distinctly uncomfortable with the Financial Services Authority for two reasons.
I am not at all sure that it does what it is supposed to do which is, amongst other things, prevent financial scandals from arising and I am not sure that it actually educates the public to any material degree in financial matters.
But above all what I am concerned about with the Financial Services Authority is that nobody seems to have control over its escalating people count and costs. Just in case anyone was missing the point the FSA funding requirement for 2010/11, as set out in a press release dated 12 February 2010, requires an increase of 9.9% “in overall funding”. Are you thinking of putting up your charges this year by something just under 10%? Would you have any clients left if you did?
And when we turn from percentages to absolute amounts the total funding is the staggering sum of £454.7m. Please reread that figure! That is just the cost of funding the FSA. What about the cost to individual firms in compliance activities? Less? As much? Perhaps more? What kind of regulatory world are we creating for ourselves? Can there be any justification whatsoever for an increase of that amount of money nor an increase in staff of 280 in 2009/10 and, I have read somewhere, a further 460 staff to be taken on in 2010/11?
My concern is that, if we do not have it already, shortly we will have regulatory overload because all regulators have to justify their existence, their salary and their pension so they need to produce more and more regulation. Otherwise what are they there for we may well ask?
My view is that it is about time the cost of running the FSA was put under the spotlight. Not just whether it could or could not have prevented the credit crunch, although on this topic the buck seems to pass imperceptibly from FSA to Treasury to Bank of England and back again but, unlike my grandchildren’s party games, the music never stops leaving anyone holding the parcel. It is about time that there was a proper and full explanation of why more than £460m of tax payer’s money is required to be devoted to an organisation which has singularly failed to prevent massive scandals in the past and, although the past is no guarantee of the future, do not be surprised if another one emerges in due course.
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