RUTH SUNDERLAND: Regulators protect themselves

In his humane and cultured new book, Value(s), Mark Carney recounts an incident on his arrival at the Bank of England as governor, about bank notes. 

Winston Churchill had just been chosen to replace Elizabeth Fry, the prison reformer, on the fiver. This meant there would be no women honoured on our currency, with the exception of the Queen. 

After representations from the campaigner Caroline Criado Perez, Carney had assembled a team of Bank experts to select a suitable woman to replace Charles Darwin on the £10 note. He assumed this would be straightforward, so what happened next took him aback. 

Out of touch?: Regulators need to behave like watchdogs, not ostriches

‘I was told triumphantly that the Bank couldn’t be legally found to have discriminated because the characters on the notes were chosen from the deceased and ‘you cannot discriminate against dead people’. 

‘Leaving aside the dubious legal merits of this interpretation of the European Human Rights Act,’ he added drily, ‘many of my colleagues and I felt this rather missed the point.’ Quite. The experts were not concerned that our currency should reflect the diversity of the British people and honour outstanding women as well as men. Their preoccupation was to deflect any possible blame from the Old Lady. 

Fortunately, in this case, Carney and other wise heads prevailed, and Jane Austen duly appeared on the £10 note. 

In the context of the recent crises and scandals, some will find this a trivial episode. But it struck me forcibly because I have frequently encountered a similar attitude from City institutions and regulators. All too often the most appalling failures are met with a ‘can’t-do’ mentality. Investigations are bogged down in legalities and procedures. 

Instead of straining to protect the public, the regulators appear more concerned with protecting themselves. The irony is their narrow mindset makes it certain they will be criticised. Rightly so, because their priorities are upside down.

We are seeing this yet again in the case of Greensill Capital. That company avoided almost all oversight despite dealing in billions of pounds worth of supplier finance, despite multiple warning signs, and despite the fact its fate is inextricably bound up with one of the UK’s biggest steel producers with 5,000 UK jobs at risk. 

The Financial Conduct Authority was not responsible for Greensill because lending to businesses is not regulated. Part of its activities were overseen by a US firm called ACA Mirabella under a system where regulation is outsourced to an ‘appointed representative’. This is absurd. The FCA should have been alive to the dangers presented by Greensill and found a way to do something about it. The same applies to the bond scandal at London Capital & Finance. 

Mark Carney’s anecdote about women on bank notes is the perfect distillation of the defensive culture the Bank and the regulators need to leave behind. There are signs it is improving, thanks in no small part to Carney himself who worked hard, among other things, to broaden the purview of financial stability to include climate change. 

At the FCA, however, evolution is not happening fast enough. Financial innovation is racing ahead at an explosive rate as are fraudsters and charlatans.

It is not good enough for regulators to take a jobsworth line on scandal and injustice with arguments that they can’t possibly breach their own arbitrary perimeter walls. They need to behave like watchdogs, not ostriches. 

• Value(s) By Mark Carney is published by HarperCollins.