Thursday, September 29, 2005

Red tape and over-regulation could threaten growth, KilIick tells Bankers

Finance centre fears * by Peter Schirmer


Mr Marcus Killick - FSI Chairman and Commissioner
Gibraltar’s finance sector continued to strengthen, expand and deepen, but we remain vulnerable to external factors over which we have no control and it would be foolish to express “mindless optimism” about the future, Financial Services Commissioner Marcus Killick warned yesterday.

He told the third annual conference of the Gibraltar Bankers’ Association that “whatever the strength of our finance centre itself - and it is strong - we are vulnerable to the actions of others.”

“Few would have predicted two years ago oil at above $60 a barrel,” he said. “We forget the power of Mother Nature at our peril. The success of Gibraltar is entwined with the world economy. Therefore whilst we can take pride in what has been achieved, we must redouble our efforts for the future.” And he added that the FSC would continue “to support and supplement such efforts rather than inhibit them”.

Killick has long been an advocate of efficient and effective regulation at all levels rather than heavy doses of unwieldy regulation accompanied by the inevitable bureaucratic red tape which accompanies heavy-handed implementation.

In a wide-ranging address Killick told the conference – whose theme was “Working in Partnership” - that too much red tape, the burdens of excessive EU directives and the growth of bureaucracy and greater regulation could stifle growth and initiative.

“Some including myself consider that the pendulum has swung too far,” he said.

"Those involved in banking - indeed in any senior corporate positions - have never been under greater scrutiny and, some might argue, greater threat… Nor does one have to physically be in the USA to come under its gaze. The use of the new UK Extradition Act on alleged white collar criminals demonstrates this.”

While fines of firms in Britain and America continued, the question remained of whether corporate fraudsters deserved sentences longer than rapists, however larger the amount they were alleged to have defrauded from investors.

"I would like to see, not more regulation but better regulation, regulation that is needed and fit for purpose,” he continued, pointing out that over the past two decades the financial community has moved from self regulation – “described by some as the ‘regulation of financial markets by the practitioners for the practitioners’” - to volume upon volume of detailed proscriptive requirements. There had to be a better way, he argued.

“Unfortunately the plethora of EU Directives… means that we do not have room for manoeuvre, in the way I would like.

Hopefully the change in tone in Brussels regarding regulation may mean the growth will stop and maybe even go into reverse. I would prefer fewer regulations, for in my view people generally know when they are doing best by their client. One can generally sense test by one simple question:

“Would I be happy if I was being treated in the way I am treating this customer?

"The same question could be put in management in relation to your staff and your colleagues,” he told the bankers. If the answer is ‘no’, you have to then consider whether what you are doing is the right thing, and, if so, you are doing it in the right way.

“Yet we do have some opportunity to set our regulatory stall out in a different way.

Firstly by accepting you can be pro business and pro consumer.

Secondly that the relationship between regulator and regulated can be based on trust rather than hostility.

The key issue is one of culture. Good ethics means more than just ticking boxes. We all want a safe, transparent and efficient financial sector in Gibraltar which protects both consumers and the integrity of the market.

This can be achieved by cooperation and understanding between the finance industry, the regulator and the Government."

Referring obliquely to the relationship between the Financial Services Commission (FSC) and Government, Killick said that the word “independence” was rapidly turning into a mantra, to be chanted by some regulators at every available opportunity.

“Of course regulators must be operationally independent, as indeed we are. Of course there is always room for improvement. Of course that independence must be codified and protected. Yet independence, like the Fellowship of the Ring, does not sit by itself, it is part of a trilogy. It comes with scrutiny and accountability. These siblings do not restrict independence; they make sure independence is used effectively, efficiently and appropriately. Like Tolkein’s books they work best as a set.”

Killick added that the FSC would continue to implement and enhance its risk based approach.

“We are aware that inefficiency in one partner impacts the others to the detriment of Gibraltar as a whole. We will also continue to build the strength of an already, internationally recognised regulatory team at the Commission through our participation in the pilot Investors in People programme.”

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