City AM, July 2012 – Stephen Gilchrist discusses the relationships between banks and regulators
9th July 2012
"Without banking Britain is bust," a taxi driver recently told me. He is right. A competitive, free, financial market is vital to our country's well-being. Any regulation imposed should be applied equally to all market participants. What the Libor scandal has shown is that the too big to fail principle has created a regulatory advantage for bigger banks. Regulators and banks have a cosy relationship of soft words, nuances and nudges on how banks can conduct their business. This is dangerous and unfair. Smaller players in the markets do not have the same relationships and consequently pay for it in higher trading costs or increased regulatory burden, while compliance officers face huge personal costs when their advice is ignored. Our concern is that regulators have to be seen to be fair to all, not just the special few. Otherwise the financial markets will
smell and rat and desert the great ship, the City of London.
Steven Woolfe is Ukip financial services spokesman.
Pointing the finger at the FSA and shouting "conspiracy!" misses the point. "Cock up" is a more accurate battle cry. While individuals within the regulator are assigned to individual banks to enable it to understand the bank's business, it is not the regulator's business to manage the bank's affairs. Resourcing and the quality of resources is the issue. Missing warning signs about Libor problems is not necessarily indicative of an unhealthy relationship with the banks. It points much more towards the dichotomy of a relatively compact regulator being expected to monitor the behaviour of a global financial giant, operating in an essentially amoral industry. Especially when the tension between doing well for the bank, the economy or the commission-earning individuals within it, is ever present. Trust also plays a part. The banks must comply with FSA principles. It must be assumed as a default position that they are in fact doing so.
Stephen Gilchrist is chairman and head of regulatory law at Saunders Law.