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This is the most important topic for our democracy. What is the constitutional position of regulators? Are they a 4th branch of the State or subsidiary to the existing 3 (executive, legislature, law)? Amazingly no-one knows and modern constitutional law textbooks make no mention. Is the spirit of Magna Carta which set in train the restraint of arbitrary questionable power over us dead when people we have no ability to hire and fire rule our lives in ever greater minute detail?

Their reach. Our lives these days are shaped in the UK (mut. mut. elsewhere) by the likes of OfCom, Ofgem, ONR, Ofwat, ASA, BBFC, CMA, EHRC, GBGB, ISPO, OGA, SHC, CAA, ORR, CQC, NHSI, CNHC, GCC, FCA, PSR, PRA, EA – in total 90 regulators in the UK :-O And that’s before we mention quangos (NDPB’s non-departmental public bodies) which in the UK employed 111,000 in 2009. As we heard in LFP112 the FCA is currently proposing to de-democratise P2P. How can they have these powers? Who are they to remove your freedom or mine. I mean that sincerely – its one thing if parliament removes our freedoms, thats bad enough but at least we can vote the government out. We have no such choice when it comes to the FCA or any of the other proli9ferating regulators.

Their cost. Furthermore all this bureaucracy and micromanagement of our lives does not come cheap. In UK-FS the cost of BoE/PRA/FCA has increased six-fold since 2000 The cost of  the 90 regulators is direct expenditure of £4bn and indirectly are believed to cost industry £100bn p.a. to comply (source: National Audit Office).

Does it work? Lord Turner in LFP065 agreed w/r/t FS with Niall Ferguson’s “excessively complex regulation has become the disease for which it purports to be the cure”. John Kay in LFP055 also felt, like I, that in FS this new approach was leading to more crises not fewer.

Asymmetric risk profile of regulators. In essence there is no cost to retraining Gulliver’s freedom down with one more thread, one more paragraph of regulation but they run a huge risk if Gulliver goes on a bender and trashes the local village. There is little downside for them in the short term in reducing the freedom of citizens to do what the hell they want. However when something goes wrong – and it always does – there is hysteria and political calls for public flogging of regulators. What would you do in those circs if you worked in a regulator?

Sir Paul Tucker not only has 34yrs experience at the BoE, as well as roles on the broader banking stage, he is now a research fellow at Harvard, and chairs the Systemic Risk Council a body set up in 2012 of wise elders such as Paul Volcker, Lord Turner, Jean-Claude Trichet, Paul O’Neill, John Reed and many more who advise current regulators. All of this in itself would be more than sufficient to have clear insights into regulation per se. However above and beyond all this Paul has spent several years working on a super-impressive tome called “Unelected Power – The Quest for Legitimacy in Central Banking and the Regulatory State” and has thus been thinking super-deeply about the topic. The book itself is well over 500pp with an astonishing 30pp bibliography and is guaranteed to become a reference work in this topic. None less than Paul Volcker says of the book “Paul Tucker has written a most timely and thoughtful analysis of the role of independent agencies in democratic societies.”

Paul is also not arguing from any position of “leave it to the mandarins” as cynics might think. Both he and the governor Mervyn King argued against the BoE being given excessively enhanced powers post-crisis. He has said “Too much govt power lies in the hands of unelected regulators” and would have subtitled the book “How technocracy should retreat to preserve our system of government and in its own interests”. Another comment I warmed to was “policy makers should refrain from participating in many other and broader issues confronting their societies”.

So it’s a super-important episode for us all as citizens let alone for the development of Fintech and FS. And a super long intro to the show notes which I will wrap up with a quote from inside the cover of the book:

“Unelected Power lays out the principles needed to ensure that central bankers, technocrats, regulators, and other agents of the administrative state remain stewards of the common good and do not become overmighty citizens…Tucker explores the necessary conditions for delegated but politically insulated power to be legitimate in the eyes of constitutional democracy and the rule of law. Tucker explains how the regulatory state need not be a fourth branch of government free to steer by its own lights, and how central bankers can emulate the best of judicial self-restraint and become models of dispersed power. Like it or not, unelected power has become a hallmark of modern government. This critically important book shows how to harness it to the people’s purposes.”

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