Graphs at a glance: Financial regulation in the USA and the UK: Federal Marshal versus Sleeping Policeman

Winston Churchill said of America:

“You can always rely on America to do the right thing once it has exhausted all the alternatives”

Sadly, the same can’t be said of Britain.

London and New York have fought for the top “Global Financial Centre” spot for years. According to the March 2014 “Global Financial Centres Index” produced by Z/yen, who describe themselves as “the City of London’s leading commercial thinktank”:

“New York is now the leading centre, although its lead over London is statistically insignificant – two points on a scale of 1,000.”

What is it about crusty old London that keeps it head-to-head with glitzy New York? According to a puff-piece by the City of London Corporation the key elements to a Global Financial Centre are:

• Critical Mass; Connectivity; People; Regulation; Domestic Market Infrastructure; Business Environment

Six solid gold attributes that New York and London can both offer. But London offers something even more valuable! In March 2014 the Financial Times reported that the total fines paid since the Banking Crash by banks to US regulators hit the US$100 billion mark:

"Wall Street banks and their foreign rivals have paid out $100bn in US legal settlements since the financial crisis, according to Financial Times research, with more than half of the penalties extracted in the past year."

Figures show that in 2008 both UK and US regulators were fining banks a similar amount - reflecting the fact that the US regulation was then just as spineless as the UK. But by 2013 UK regulatory fines were only one fiftieth US fines.

Exchange rate US$1.6 = £1

In America, having exhausted all the alternatives perhaps they are trying to do the right thing. The US Declaration of Independence states that power comes out of the consent of the governed: the font of power is the people. In contrast, somewhere deep in the British psyche seems to be the notion that power comes from above "by the grace of God". The notion that the powerful have a divine right to reap the people. 

When they reap excessively UK regulators will only put up a gentle hand and softly "shush" them. We see this gentle approach in OFGEM launching yet another investigation into market abuse by the energy companies. And when the FCA announced a probe into £150 billion of suspicious business by insurance companies, the companies squealed so much that the FCA quickly issued a statement that they were certainly not going to be too strict nor too intrusive:

"We are not planning to individually review 30m policies, nor do we intend to look at removing exit fees from those policies providing they were compliant at the time.  This is not a review of the sales practices for these legacy customers and we are not looking at applying current standards retrospectively – for example on exit charges."

FCA statement on fair treatment of long standing customers in life insurance

Should we pity the poor regulators, who actually know they are little more than fig-leaves? Hector "be very afraid" Sants, formerly chief executive of the FSA, said in a speech in June 2011:

 

"I would like to take the opportunity to make some personal remarks on the challenges the FCA faces.

''The biggest disappointment of my time at the FSA has been the failure of firms, in particular their senior management, to learn the lessons of past mis-selling. Sadly the recent history of the British retail financial services industry is proof of the adage that those who fail to understand the mistakes of the past are condemned to repeat them.''

These words were spoken not by me but by Howard Davies, the first chairman of the FSA at the annual public meeting in 2003. These words are as true now as they were then. Eight years on, there is little or no evidence that any significant change has occurred in the attitude of the financial services industry towards its customers."

Hector Sants, CEO of the FSA, 28th June 2011

Chairmen of the FSA lamenting the incorrigibly bad behaviour of the banks and insurers were joined in their frustration by the then Governor of the Bank of England, Mervyn King, who commented in March 2011

"if it’s possible to make money out of gullible or unsuspecting customers, particularly institutional customers, [the banks think] that is perfectly acceptable”.

Or should we save our sympathy for the real victims of weak regulation? All the ripped-off Britons?