We relax these rules at our peril

FINANCIAL watchdogs on both sides of the Atlantic are poised to roll back regulations – and we should be worried. In the US it is thought the regulators are planning to re-write rules that ban big investment banks gambling on the markets with their own money.

The so-called Volcker rule, introduced in the wake of the 2008 financial crisis, was brought in to curb the danger that banks would make risky investments with their own money, exposing themselves to big losses and fuelling instability. Under Donald Trump, a review is underway to ease off on those rules. Details are unknown but already bank shares in the US are surging.

In the UK, the Financial Conduct Authority is looking at relaxing the rules to make it easier for large groups controlled by foreign governments to list on the London stock market. Though no one says it explicitly, this seems clearly aimed at luring Saudi oil giant Aramco to list its shares in London.

This would be a short-term boon to the City and it is hard not to feel that in some ways the rules adjustments are partly motivated by a desire to offset the risk Brexit poses to the City.

In the long run it may come back to haunt the Square Mile if – though I suspect when – a major foreign-owned company clashes with minority UK shareholders and the small investor, or even a City institution finds it is overwhelmed by the power of a state-controlled group.

These developments in the US and UK point to an environment in which the valuable lessons of recent years are being forgotten in pursuit of a short-term boost to financial markets.

The relaxing of UK listing rules has even drawn criticism from the Institute of Directors, not typically known for its love of regulation. But the IoD recognises that a key attraction of the London market is its reputation for stability, reliable rules and a system that protects the rights of all shareholders.

There are valid fears that relaxing the rules for big foreign state-owned groups will undermine the rights of smaller shareholders. The last thing the UK needs if it is to hold its own as a financial centre is a reputation for bending the rules for shortterm gain.

How the US Volcker rule will be amended is unclear. But I do not have much faith that the Trump administration will oversee changes with the appropriate caution.

The lessons learnt from crises and scandals are all eventually forgotten, but it usually takes a generation or more. I have a worrying feeling that memories are getting shorter.