Tuesday, 28 July 2009

The delights of "regulation"

Contrary to what some people evidently believe about me, I do approve of a degree of regulation. Anything that involves a business lying to a customer should be severely punished (with the usual caveat that if you don't read the fine print, that's your problem.) What I don't approve of, is reams and reams of pointless red tape. That leads to higher barriers to entry in markets, which means consumers suffer because the markets aren't free.

And contrary to what people might believe about regulating with loads of red tape being a good thing, I'd like to point out that our banks are regulated to death and were already regulated to death before their so-called "free market collapse". Financial institutions were heavily regulated when Equitable Life mis-sold like bastards. Barings was under the same massive weight of regulation. The regulation hasn't helped all those customers.

What the regulation does do, is create barriers to entry. Look at, for example, massive capital reserve requirements. It sounds fine, but a) they didn't fucking stop the banks from hoovering our wallets to a level never seen before in UK history (which is pricisely what they were supposed to stop) and b) they make it practically impossible to start a bank ever again. So the regulations failed to protect anyone (least of all the banks) and they also stop anyone from stirring up the cosy banking cartel.

So, what I am in favour of is a smart, vicious regulator that can turn around complaints quickly and effectively and punish miscreants with suitably painful fines or other penalties. A sort of meta-OFT with teeth like a tyrannosaur and balls like a rally driver.

Regulations, processes and procedures rarely prevent criminal misbehaviour. They only cover the arses of the people who would otherwise carry the can for their incompetence. And so, it is with no small degree of irony that via Timmy, I present this tale of what happens when you put your faith in regulations, procedures and processes:

The Office of Fair Trading (OFT) spends hundreds of thousands of pounds each year urging consumers and businesses to be on their guard against scams. But the taxpayer-funded body failed to notice an alleged major fraud going on under its own roof until £250,000 had gone missing.

How, in the name of all that is holy, can the very body that is supposed to protect us, fail us in this way?

In small print accompanying its annual report, the OFT admitted that the alleged fraud had not been detected because of a “control weakness” in the accounts payable department. The problem saw the OFT lose £97,000 last year and £153,000 the year before.

Them's weasel words, them. Somebody was dependent on process and procedures, rather than using their judgement. And when you have blind faith in regs and processes, this will always be the outcome when someone gets greedy.


Mark Wadsworth said...


Half the push for regulation comes from incumbents, so it ought to be scrapped. The other half comes from the authoritarians and "I know better" brigade" and should be scrapped as well.

As to consumer protection, yes there are sensible rules on this, but as far as outright scams go, there is an age old natural law that says gullible people will be fleeced by crooks. This is more a matter for criminal law than 'regulation' in the narrower sense.

Anonymous said...

"What the regulation does do, is create barriers to entry."


It's a feature, not a bug.

Most of these regulations get created following lobbying by the existing business in a sector.

Keeping the competition out is the main driver.

Sambo said...

There is a gem in the original Torygraph article.....

The OFT also secured its FIRST criminal conviction, when three men were jailed for operating a cartel in the marine hose market.


Fuck me, they actually nailed someone at last. All those cunts in the marine hose market must be shitting themselves.