We have nothing to fear from an appropriate, proportionate and targeted regulatory regime – it will help our industry flourish again, says Lord Hunt
At the recent G20 summit in London, regulation truly loomed large. How times have changed.
I spend much of my time engaged in various independent reviews of regulatory and related functions (notably the Financial Ombudsman Service last year and the regulation of law firms this year), and I am acutely aware that, among readers of this magazine, it is the future regulation of financial services that must be the most pressing concern. It is now generally accepted that the regulatory regimes for financial services did let us all down badly – particularly in the UK and in the US, but elsewhere too – which undoubtedly made a significant contribution to the recent, violent lurch from economic growth into recession. The big challenge now is to prevent a repeat performance and the key to that is to reassert, again and again and again, the importance of the highest professional standards.
Adair Turner’s impressive and far-reaching review has challenged us all to revaluate our belief in a rational and largely self-correcting market, capable of delivering innovation and socially (and economically) acceptable outcomes. Picking up on Turner’s themes, David Cameron has made it clear that, when and if he becomes prime minister, he is minded to introduce some radical changes to the regulatory regime for financial services. The all-party House of Commons Public Accounts Committee has weighed in too, suggesting that the National Audit Office should give the Financial Services Authority (FSA) a good going-over, for only the second time in nine years. Sometimes it seems the FSA is scarcely less unpopular than the bankers it regulates. To put it mildly, goodwill is in short supply just now.
The ABI has rightly been busy, both crafting positive proposals of its own and getting some necessary retaliation in first. I have been very impressed, indeed, with the ABI’s work. Its priorities for action during the next three years rightly focus on delivering better products for the public, within a more effectively regulated commercial environment. I also strongly endorse the ABI’s focus on restoring confidence within the market and its belief that a spirit of partnership is essential, within any system based on multilateral regulation. The tripartite regime can deliver effective regulation, but only if everyone works together in an open, clear and balanced way.
Before unleashing even more proposed “solutions” on to an unsuspecting world, we must all be absolutely clear about the nature of the problem. It still seems to me our two main problems are the availability (or lack of it) of credit and low confidence. A lot of money has been printed and committed in recent months, and many words have been said. There has been some welcome rallying of the stock market, but otherwise not much by way of concrete improvement to our predicament. In business, as in life itself, survival is all, and unless the government delivers much-improved credit flows and greater confidence soon, all too many firms may find survival simply impossible.
This recession may or may not have its ultimate origins within the practices and policies of the financial services industry, but there is no escaping the fact our sector is certainly being badly hit now, in the City as on Wall Street. From week to week we brace ourselves for the worst, as the job losses being announced number in their thousands, not their hundreds. Much of this misery might have happened even in a more clement economic environment, however, so there’s no reason to suppose all these jobs will somehow magically reappear when the first “green shoots” pop up.
Equally, there is no justification for us losing confidence and self-belief. The fact is, the world needs insurance: firms need insurance, families need insurance and individuals need insurance. I make no apology for baldy restating my lifelong, unshakeable belief in the public utility of insurance and, therefore, the value of those working in the industry. This recession won’t last forever, so the long march towards continuous professional development and the widespread adoption of professional ethical standards must continue without anyone breaking step.
So let us return to first principles and reaffirm the critical importance of our industry to society. Winston Churchill once remarked: “If I had my way, I would write the word ‘insure’ over every door of every cottage and upon the blotting book of every man, because I am convinced that for sacrifices that are inconceivably small, families can be secured against catastrophes which otherwise would smash them up forever.” As we batten down the hatches for the worst of this bitter recession, I can think of few sentiments more consoling, or more uplifting. Our industry will survive, and it will flourish again – because it is overwhelmingly in the public interest that it should. This country must retain its position as the respected international centre of excellence, which in turn requires a regulatory system that is appropriate, proportionate and targeted. That, surely, is the lesson of the past year?
Lord Hunt is a partner and chairman of the Financial Services Division at national commercial law firm Beachcroft LLP.