The shifting sands of regulation

He said: “Something is seriously awry when… the FSA that was established to provide clear guidelines and rules for the financial services sector and to protect the consumer against the fraudulent, is seen as hugely inhibiting of efficient business by perfectly respectable companies that have never defrauded anyone.”

It is possible to go through Mr Blair’s speech with a fine-tooth comb and find very little else of substance. At least he didn’t urge investment banks to buy up every mortgage-backed security and credit default swap they could lay their hands on, or demand that high street banks play fast and loose. He was happy just to bully the regulator.

At the time, FSA chairman Callum McCarthy hit back at the PM, saying the regulator was bewildered by the remarks and pointing to its excellent work in cost benefit analysis and risk-based regulation.

Looking at it now, the response appears even worse than the accusation. Nonetheless, when Labour tries to argue it was not responsible for the global financial crisis, I think Mr Blair’s speech should be exhibit one for the prosecution. Among political parties, the US Democrats and Republicans and even Germany’s CDU should get a dishonourable mention, too.

But what exactly, you may ask, has this to do with 2016? Well, the tone of the debate about regulation is changing. Some believe it is shifting fundamentally. The circumstances are not identical – there is no economic boom and markets are more jittery, for example. But is now the time to be easing off on regulation?

Mr Blair’s speech should be exhibit one for the prosecution

Post-crisis, the Conservatives in coalition took some very important decisions, shaking up the regulatory organisations. The FSA became the FCA, with responsibility for financial stability handed to the Prudential Regulatory Authority and the Financial Policy Committee. Sensibly, the latter two organisations are part of the Bank of England. The Conservatives also took a reasonably tough stance on banks and capital requirements, in keeping with a global consensus.

The Tories have therefore successfully given the impression that they are better at understanding and, ultimately, restraining financial services – though they do have the benefit of hindsight. The risks to this appearance are obvious – they are deregulators by instinct, and too close to the City, and thus liable to succumb to the steady drip-drip of calls to ease off.

And even without clumsy, cynical Blair-like speeches from the current PM or chancellor, it feels like there is a shift in the atmosphere. Yet what exactly does an end to bank-bashing translate to in regulatory terms?

Has the Treasury gone for a more market-orientated FCA chief, and what, again, are the implications of this move? Is the regulatory regime to be relaxed for the institutional market, as many have speculated since the election, or even for the retail market as suggested in the past couple of months?

In my view, the retail market needs better-targeted and more stable regulation, but not necessarily a rowing back of current rules. The same applies to the wider regulation of banks and other City players. And if a government wants to change regulation, these changes should be enacted via legislation, not through hints and subtle pressure. We don’t need reckless speeches, either.

John Lappin writes on industry issues at www.themoneydebate.co.uk