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50 shades of grey … hair

I was talking about the component-based model and how it was now moving into component-based regulation, when someone challenged this notion.

“Not our regulator”, he said.  “Our regulator’s going the other way, and consolidating all regulations under one national system”.

I thought: we did that years ago.  


When we had LIMRA, FIMBRA, IMRO, SFA, LAUTRO and such like, we had a regulator for every bit of the market.  Then they consolidated under the Personal Investments Authority (PIA) and finally the Financials Services Authority (FSA).  Eventually, that didn’t work so we now have a regulatory structure (Prudential Regulatory Authority) and conduct police (Financial Conduct Authority) that are introducing component-based rules around payments, P2P, investing, deposit taking and more.

The move towards universal banking after the removal of Glass-Steagall is reversed under Dodd-Frank and the Banking Reform Act.  We now have ring fences and magnifying glasses looking to separate all parts of the market out into their naked pieces.

That’s in our part of the world anyway.  In other parts of the world, it’s completely different.

The Reserve Bank of India (RBI) is still fighting to keep foreign banks out of the Indian markets and maintain control; China’s banking regulators are trying to let funds flow freely, as long as they flow in the direction they want (hence, Bitcoin and Alibaba are not endorsed); whilst smaller markets have regulators who seem to just get in the way, talking about New Zealand and Saudi Arabia.

In other words, there is no one-size fits all financial regulation.  Instead, we have 50 shades of grey, run by 50 shades of grey-haired ex-bankers.

It’s a well-known trend that bankers who didn’t cut it or who are reaching retirement years are the two most likely forms of beast to join the regulatory bodies of this world.  In fact, the regulators have always got it tough as they never front-end the markets.  They’re always at the back-end in catch up mode, after the horses have bolted.

This then makes for an interesting nuance, as regulators are trying to co-ordinate markets that are global using local rules, and never foreseeing the future but always sweeping up the mess that’s been left behind.

That then begs: what is the best form of regulator?

The one that leaves the market to free market principles (Alan Greenspan)?  The one that works on principles-based approaches (Mervyn King and Adair Turner)?  The one that wants a Napoleonic view of the world, and have all the rules written in triplicate so they cannot be breached (Michel Barnier)?  Or the one that lets the actions speak louder than the words (Janet Yellen/Benjamin Lawsky)?

Whichever regulatory structure you fall into and whichever side of the fence you sit upon, you are never going to have a regulator that actually works.  Just one that tries to keep up.  And the ones that keep up in alignment with the markets is the one that will most likely have successful markets.

About Chris M Skinner

Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, the Finanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal’s Financial News. To learn more click here...

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