Scotland wants an economy that works for all, not another financial crash, and regulators must act in public interest
YOU only have to take a stroll through my constituency in Glasgow Central to get an idea of the scale of the contribution of the financial sector to the broader economy. But recent history has made us all too aware that when the financial sector goes wrong, it drags down the rest of the economy with it. The impact of the 2008 financial crash is still being felt in some parts of Scotland and beyond.
It is within this context that we must understand the UK Government’s flagship Financial Services and Markets Bill. This Bill looks to deliver a post-brexit “Future Regulatory Framework”. It imposes requirements on regulators to promote the “international competitiveness” of the UK’S finance sector, outwith their remit as regulators. Attempts to make the UK an attractive destination for multinational finance firms has been tried before, with disastrous consequences.
My main concern is that a focus on “competitiveness” can put undue pressure on regulators to water down the rules of the financial system in a “race to the bottom” with other financial centres. Prior to the global financial crisis of 2007/08, the Financial Services Authority (since replaced by the Financial Conduct Authority) was given a duty to advance the international competitiveness of the finance industry. In 2012, the Treasury and Parliament concluded that this was a key factor in the crisis. As Andrew Bailey, the Governor of the Bank of
England, summarised in 2019: the regulator “was required to consider the UK’S competitiveness, and it didn’t end well, for anyone”.
Mr Bailey isn’t alone in his concerns about the Government’s wrong-headed approach. More than 50 leading academics and former regulators have signed an open letter to the Government criticising this strategy. These are views supported by wider society. Polling commissioned by the charity Finance Innovation Lab shows that the Scottish public overwhelmingly shares these concerns. More than 70 per cent of Scots think the proposal repeats the mistakes of the past, rather than looking to the future.
This polling also finds a majority who consider this proposal to represent the UK Government prioritising its friends in the City of London over the very real struggles facing ordinary people at this time. Nearly eight in 10 Scottish consumers (77%) – the highest in the UK – say the proposal is out of touch and elitist, compared to 23% who think it represents their interests.
The Scottish public understands that asking regulators to focus on industry competitiveness can lead to another financial crisis.
Another crisis would damage the industry itself and our recovery from the pandemic, and would represent yet another hit to household finances, at a time when people can afford it least. The UK Government is presiding over regulatory recklessness during a time of record inflation and stagnant growth – it is unacceptable.
Regulators should be independent watchdogs making decisions in the public interest, not in the interests of financial lobbyists, who already have practically unfettered access to policy-makers. We need rigorous and focused regulation to ensure the finance sector continues to effectively contribute to our economy. Brexit is a problem made by the UK Government, and cannot be solved by a race to the bottom on standards which risks throwing us headlong into another financial crisis.