Trouble is looming in the shape of a Euro super regulator, says Lord Hunt
Regulation destroys enterprise and innovation. Over-regulation is the greatest enemy of ideas. Bureaucracy stimulates the cautious and deadens the entrepreneur. All these truisms highlight the dangers of today's business environment. Whenever there are failures, prevention, not cure, is the public cry. Why didn't the regulator provide a risk-free environment for the investor? Fortunately the Financial Services Authority (FSA) is headed by Sir Howard Davies, who is widely respected for his constant belief in a "light touch". His political masters are of the same mind. Treasury Economic Secretary Ruth Kelly recently made public her view that she was not interested in a "zero failure regime". That would imply that the balance of regulation was wrong.
Extra cost
All these words are comforting but, however light the touch, the move from self-regulation to statutory regulation will inevitably mean substantial additional cost and extensive new procedural and administrative burdens. However enlightened the regulator, there are a number of problems looming. Enron, Marconi, Equitable Life, Independent Insurance and Railtrack are all reasons why it will be difficult to resist the move towards further and closer scrutiny.
For every angry constituent who has lost money, there will be an MP determined to increase consumer protection. All this just at the time when strengthening regulation is being seen as the solution.
The Euro factor
As general insurance, together with the travel and mortgage advice industries, struggle to cope with the move to statutory regulation, there is a much bigger cloud on the horizon.
In the corridors of Euro power, the French government has begun moves to set up a Euro super regulator. Yes, this is not a Euro joke. Following the 14 to one defeat of the UK in seeking to uphold self-regulation, the French are seeking to establish a regulator for all financial services in the European Union. They argue that such a regulator would have to be based in Euroland. With London and the UK outside the euro, the French argue, the way is clear for the Euro super regulator to be based in Paris.
The problem is that most of Euroland has a completely different financial services environment to the UK. As we are seeing with many of the directives coming forward, the overwhelming majority of member states are importers of financial services. There is, of course, considerable envy of the UK as the biggest exporter of financial services. A single Euro policymaker, rule maker and regulator in the single financial market, based in Paris, would be a nightmare for the UK.
Hopefully, all our partners will see the advantages of having a consolidated wholesale financial market, based in London, as the only possible competitor to New York.
Lord Hunt of the Wirral is senior partner of national law firm Beachcroft Wansbroughs
