Who watches the watchdog? Indeed, a question which has concerned civilizations since the emergence of that state. A matter of concern for leaders for millennia. If I’d been to a ‘better’ school, I would happily recite the Latin for this: I didn’t and I can’t.
Fortunately, I can consult ChatGPT where I learn that ““Quis custodiet ipsos custodes?” is a Latin phrase that translates to “Who watches the watchmen?” – It is often used as a rhetorical question to question the accountability of those in positions of power or authority.” Thank you OpenAI.
It is this self-same question that comes squarely into focus as we head towards committee stage of the Financial Services and Markets Bill this coming Wednesday (January 25). As I have already pointed out, the Bill boasts upwards of 335 sides with more to come. It has the potential to transform our relationship with financial services regulations, potentially even for the betterment of folks and firms alike.
If the Bill has much to say on regulations though, it must be right to look at the current role of the regulators – their form, their function and how they may be further assisted through this legislation. It is because of the critical importance of our financial regulators that I determined to write three pieces this week, closely examining the issues at hand.
Today, the first of these three pieces focussing on regulation and the regulators, I will deal with ‘international competitiveness’, a new secondary objective set out for the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) in Clause 24 of the Bill.
It seems clear that the international competitiveness objective for both the PRA and the FCA must play a significant part in promoting UK competitiveness. Fortunately, conceptually, there is nothing new in this, plenty to look at from overseas jurisdictions who have already considered this regulator objective and how it may positively support and impact their markets.
Let’s start gently, to a jurisdiction never held out to be unstable socially, politically, or economically. Yes, I speak of Switzerland. The Swiss Financial Market Supervisory Authority (FINMA) is required to take particular account of “the effect that regulation has on competition, innovative ability and the international competitiveness of Switzerland’s financial centre.” Looking at the numbers, they seem to be doing more than a pretty good job in this respect.
Another Commonwealth comparator to consider, Australia. Their Prudential Regulation Authority’s (ARPA) statutory objectives require it to “have regard to, and avoid unduly hindering, desired objectives for the financial system: efficiency, competition, contestability, and competitive neutrality. Balancing these additional objectives in undertaking its prudential role is important, as they support Australia’s long-term growth and productivity.”
And to complete the podium, Singapore. The Monetary Authority of Singapore (MAS) works to ensure that Singapore’s financial services industry remains competitive by engaging with governmental agencies and financial institutions to promote Singapore as both a regional and international financial centre. To facilitate this the MAS may draw upon a Financial Sector Development Fund to develop regulatory and infrastructure systems. Again, seems to be going along well in this respect.
It is not only important to have an international competitiveness objective but also to have effective reporting on how it is all going, which, brings us nicely to Clause 26 of the Bill.
Curiously, Clause 26 of the Bill currently allows regulators to decide for themselves how they believe they have met the requirements of the new competitiveness objective. For example, the Clause states that the FCA can decide ‘in its opinion’ how to report on the objective and, thus, how it has met it.
I am not sure that this will provide the right level of oversight. I think it is one issue that needs to be addressed and I will cover it in more detail in tomorrow’s piece when we look at more of the questions around accountability.
It seems clear to me that the ‘competitiveness objective’ must therefore have alongside it a clear set of reporting and performance metrics so that government and parliament can properly hold the regulators to account.
I am proposing that the reporting requirement in Clause 26 should be enhanced by criteria including:
These criteria can be measured, and targets created to ensure that the regulators are operating effectively. This does not require reinventing the wheel, many of these are taken from the performance criteria of other regulators who already have a competitiveness objective.
I have used these priorities to set down several amendments to be debated at committee stage of the Bill. I want to break the false dichotomy that you can’t have both consumer protection and an objective for competitiveness. It’s clear that you can.
So, that’s day one done on the regulators and the competitiveness objective. Tomorrow, I will consider regulator accountability. Until then, very keen, as always, to hear your views, your experiences of working with our financial services regulators, how it could have been better, the good, the not so. In short, I hope, to quote ChatGPT again “Omnes custodiemus Ipsos custodes” – “all of us will watch the watchmen”.