8 August 2014

IERM Comment: Hiring former regulators is not a good sign

When senior staff leave a regulator to join the industry they were previously regulating, it always seems to create a bad taste in my mouth.

It feels like a cynical move by industry to enhance its strength in lobbying against regulations. Regulations that are being designed to enhance consumer protection, it is worth adding.

It is also sad that the public sector cannot pay its talented individuals as well as the private sector. Knowledge and experience built up over the years is lost to the highest bidder – in football terms, it's the difference between Manchester City throwing open its bank vaults and Southampton doggedly investing in its youth academy.

At its worst, it could be seen as a broadside against the regulators; get off our backs, or we will decimate your staff.

So you could imagine that the transfer of the UK's top prudential regulator, Julian Adams, to Prudential, would make one feel pretty bilious.

Yes and no.

There are probably other factors in why Adams left, such as personal reasons or a clash of culture at the top. It is worth noting that it's been almost a year since Mark Carney became governor of the Bank of England - enough time to realise you're no longer fitting in and find a new job.

His move is also a demonstration that Prudential sees a major risk from the unprecedented amount of pressure from regulators the world over and with the painful shift to a more globalised supervision of insurance companies.

HSBC chairman, Douglas Flint, earlier this week gave a bleak report of the conditions at his bank as it implements regulatory reforms. He noted "an observable and growing danger of disproportionate risk aversion creeping into decision-making in our businesses as individuals, facing uncertainty as to what may be criticised with hindsight and perceiving a zero tolerance of error, seek to protect themselves and the firm from future censure".

Spending on risk and compliance is soaring and Flint warned that staff were getting fed up with having to deal with regulations, rather than come up with new ideas.

There seems to be little doubt that insurers are suffering similarly. A recent survey by Airmic, the UK association representing insurance buyers, showed that lack of innovation was their top concern.

Clearly there is a balance to be struck. But as we deal with the fallout of the financial crisis, I suspect many more gamekeepers will turn poachers and I will have to get used to that bad taste.


Christopher Cundy
Contributing Editor, InsuranceERM

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