Anthony Hilton: Time to trim the UK's army of financial watchdogsComments Off on Anthony Hilton: Time to trim the UK's army of financial watchdogs
The UK regulatory system is so good no other country could possibly invent it. So said a colleague, Christopher Fildes, 20 years ago. Since then — and particularly since the financial crisis of 2008 — it’s become even better. Indeed regulatory and compliance professionals are a whole new profession. Put a son or daughter in compliance and you need never worry about them going hungry.
Sir Philip Hampton, of Hampton Review fame, said there were 674 regulatory bodies in the UK… in 2005! Now there are apparently 41 regulatory bodies in the financial sector alone with no fewer then 14 concerned with accountancy, auditing, insolvency and some aspects of corporate governance, according to Prem Sikka, Professor of Accounting at the University of Sheffield.
But are we satisfied? Do we think any in society have had their collar felt in the banking crisis? Were the regulators up to speed with HBOS, when one of its senior people, Paul Moore, alerted the audit committee about his concerns? And what of Carillion which went bankrupt last year? The Financial Conduct Authority, the Pension Regulator, the Financial Reporting Council and the Insolvency Service are all doing some kind of investigation — but what? What do the 41 regulators do, because they very rarely handle obvious cases quickly or efficiently?
It is not just accounting issues: it is offshore taxation, money laundering, bribery, gaming the regulators in rail, water, gas and elsewhere, and the fact that most get round freedom of information inquiries. The regulators and the regulated too often are seen as one.
Part of the problem is indeed that we have so many regulators, they all underlap and leave the difficult stuff to someone else. But it is also the case that many of the bodies have been captured by the very people they are supposed to be regulating. The former chairman of the FCA, John Griffith-Jones, was before that chairman of KPMG when that firm was handling bank audits. There is no suggestion he acted improperly, but should he really have been appointed?
Similarly, Sir Win Bischoff, is still chairman of the FRC. He was formerly chairman of Lloyds and was criticised by Lord Levene in his recent book, Send for Levene, where he alleges Bischoff was given a file saying that the Co-op Bank was in such parlous state that Lloyds should not deal with them. It was just before the episode where the Co-op Bank chairman took crystal meth and the bank did indeed nearly collapse. Bischoff has told me he has no recollection of receiving any file and again there is no reason to doubt him. But why be exposed?
Several other directors are close to the accounting profession and their thinking tends to be too. Thus the FRC thinks its role is to make accounts fit for investors and potential investors, whereas accounts used to be concerned with stewardship, fairness and prudence. Indeed that is what other stakeholders — customers, employees, government — still want.
Professor Sikka’s take on this is that the entire structure of 41 regulators should be replaced with a revised system which is independent of government departments and directly accountable to parliament. It recommends that the bodies be consolidated into a Business Commission consisting of a number of sub-commissions to eliminate duplication and waste. The consolidation would streamline the system.
The revised architecture would be overseen by supervisory boards and would enable societal stakeholders to exercise strategic oversight — no more “you scratch my back, I scratch yours”.
It would be accompanied by an enforcement division which is independent of the day-to-day operations of the commissions. It would have its own investigative and prosecutor capacity so that it can have in-house expertise, memory and specialisms rather than outsourcing investigations.
An independent ombudsman would adjudicate on disputes between regulators and stakeholders. The whole lot would be accountable to parliament.
It is not what the professions or businesses necessarily want. But it goes where most people would like regulation to go. They want companies to be properly accountable to stakeholders as well as investors. They want firms to be trustworthy, and to be pledged to a purpose. They want transparency and freedom from all taint of political interference. And they want people in charge who are not superannuated captains of finance.