Written evidence submitted by HB Markets
RESPONSE TO HM TREASURY'S WHITE PAPER: "A
NEW APPROACH TO FINANCIAL REGULATION: A BLUEPRINT FOR REFORM"
1. Q. The proposals are predicated on an assumption
that the UK (as well as other member states) wishes to continue
with its increasingly submissive position within Europe. Has the
UK electorate decided or been given the opportunity to decide
on this state of affairs?
A. No. In 2010, a Referendum allowed for UK citizens
to decide on proportional representation. Calls for the same in
relation to ceding the powers of Westminster to Europe have gone
unanswered. This is not a Europhobic statement but rather a query
as to the state of UK democracy which itself serves to alert the
UK electorate to consider the same as well considering the ability
of their elected politicians in Westminster to take genuine executive
action unfettered by external interference. One wonders to what
extent the proposals have been actually decided upon by elected
representatives in Westminster as opposed to being handed down
by the EU. Figure 1.A on page 8 of the Paper omits reference to
these EU regulations. We wonder why.
2. Q. The UK government talks about retrieving
some of the UK's decision making powers which have been handed
over to Europe during the last 40 years. These proposals if put
into effect, will have the opposite effect and place yet more
executive power in the hands of European bureaucrats as well as
increase costs still further. On what basis is this good for the
UK and, more particularly, good for UK savers?
A. We doubt that it is. It is patently clear
that UK financial institutions are both active and successful
worldwide. On the assumption that firm rules relating to transparency
and financial solvency are in place, it should be left to competition
to ensure that excellent quality products and services are offered.
This would be similar to what has occurred in the car industry
over the last 100 years ie universal standards of design and safety
are agreed then individual manufacturers design their best products
based on these.
3. Q. What is financial stability? How will
this be measured? An apparently good looking investment can with
hindsight appear to have been ill-advised
A. Indeed. Prescribed Costs, Access and Terms
have not prevented many ISA products invested in an FTSE All Share
tracker fund losing money over the last 12 years ie CAT regulations
did not stop customers losing money in the longer term.
4. Q. How will the proposals be funded? Has
anyone worked out how many new staff will be required to achieve
this new structure?
A. We are not aware of what the costs might be
but suspect these will be large. On the other side of the coin,
it would appear to be a system which will provide jobs for unemployed
people and that can only be commendable. No doubt the government
has done its sums and worked out that the saving in benefits would
outweigh the staff costs.
5. Q. How will globalisation work when countries
world wide have diverse fiscal and monetary policies? The euro-zone
hasn't worked. What is the rationale therefore for an even larger
entity with such diversity? How will consensus be achieved? Many
still complain that basis upon which we went into Europe as flawed
and ill-conceived. Does it make sense to build an even larger
enterprise based on a premise which some argue was never viable?
And why the reverence of all things large?
A. We do not know. In our opinion, it would be far
better to focus on people rather than ever larger organisations.
Smaller groups of people with day-to-day responsibility and encouraged
to take an interest in promoting sound financial and regulatory
conduct represents our preferred option.
6. Q. FPC: one really has to question its
independence. But even suggestions from respondents, for example,
to have an independent chair and NEDS appointed by the Treasury
cannot remove the inevitable conflicts that will arise. How will
the Treasury make decisions about who to appoint? Will its decisions
be independent of party politics?
A. On the face of it, probably yes to the last
query but this does not change the ongoing risk of a conflict
of interest and the notion that layer upon layer of regulation
combined with micromanagement by outsiders does not represent
the optimal way to ensure financial stability as well as top quality
products and services for customers.
7. Q. Valid objections to tri-partite governance
of regulation between the FSA, HM Treasury and the Bank of England
have been voiced since the 2008 crisis. With this in mind, is
there any real difference in what is being proposed now with the
FPC, the PRA and the FCA. And that is only at local level. What
are the costs of ensuring a coherent interaction? Who will monitor
A. Again more questions than answers. It all
seems rather like bureaucracy for bureaucracy's sakemuch
centrally supplied by the EU to be subsumed into legislation ostensibly
created by elected UK decision makers. Due to previous and often
obscure treaties, this is doubtless legal but it is far less clear
whether it is democratic.
8. Q. The PRA will be authorised to judge
safety and soundness of individual firms and to take supervisory
and regulatory action. How can this authority exist independently
of the FCA's supervisory role over conduct which is all too often
the root of problems in firms?
A. We do not know but we do see the distinct
possibility that this will lead to confusion and higher costs
without necessarily giving rise to meaningful benefits for the
Whilst we agree that putting the Bank of England
at the centre of the new regulatory model is good in principle,
the proposals as they stand bring layer upon layer of new complexity
so that it is difficult if not impossible to gauge potential benefits
and almost certainly increased costs.
The success of the new framework will significantly
depend on streamlined cooperation in order to bring improvements.
Much will depend on the PRA and CPMA, in particular, and their
ability to effectively regulate and cooperate without becoming
We have real doubts about whether the changes outlined
will actually result in measurable improvements and fear that,
on the contrary, the new structure may prove fruitless in its
quest to improve regulation and financial stability.
Over and above these issues remains the influx of
EU-sourced regulation trickling into each and every aspect of
our legislation. We are not advocates of the notion that "bigger
is always better". In the context of financial regulation,
it is our opinion that a proposal based on domestically agreed
simple concepts of transparency along with the promotion of an
active, competitive marketplace would represent a better option.
In recognising the unlikelihood of this occurring,
we hope that the direction now seemingly being taken will result
in a more stable, dynamic regulatory framework for the UK and
one which supports its world class financial institutions and
services rather than stifles them.