REGULAR readers of these pages will be well used to stories of financial crime. Each one is damaging of course for the victims of it, but also to the international reputation of the Island; the fact that Jersey has strong regulatory standards has long been accepted as an asset, a vital hallmark that gives confidence to investors, and is therefore essential for the promotion of the industry.
But those points really do beg the question as to why regulation, and the way it is applied, have featured so prominently in the recent report about the competitiveness of the financial services sector?
Take this line as an example: “Requirements accumulate, each individually defensible, collectively creating a system slower and more expensive than it needs to be. The question is not whether each rule has a rationale. It is whether anyone has been tasked with asking whether the cumulative effect is making Jersey less competitive.”
The External Relations Minister is politically responsible for the operation of the regulator, and is therefore the person now asking if the cumulative effect of its regulation is detrimental – we must hope has has asked that question soon enough.
But the point about cumulative regulation is broader than just being relevant to the financial services sector. Any local business, or charity, will point to the total time (and therefore cost) burden being accrued through multiple instances of micro-compliance.
Each instance is worthy in itself whether it relates to financial services, or data protection, for example. And each regulatory official will naturally only look at the specific example in front of them. The effect of their accumulation, though, can be significant, particularly if the means of compliance is outdated, and the process to follow lengthy, time-consuming and convoluted. Or if the regulatory bar is held too high, a practice described in the competitiveness report as “super-equivalence” – basically, that the standard required is unnecessary, which then creates excessive caution.
In essence, it is akin to a “chilling effect” in which appetite for risk is self-regulated, either because the necessary agreement process is just too tiresome to be pursued, or more simply because if anything goes wrong, however minor, then the consequences of dealing with it just outweigh any potential benefits. No one is sensibly making the argument that strong regulation, whether it be in the financial services sector or elsewhere, is not essential, and usually beneficial; the point is that its accumulation is deeply problematic in a healthy economy, because of the chilling effect it can have on activity, confidence and risk – all of which are essential for growth.
