The Bank of England Vs The SFO: The Tail Investigates The Dog

It has been a week to forget as far as The Bank of England is concerned, with even the Governor of the 300-year-old institution, Mark Carney, admitting that its reputation has taken a knock. However, to my mind he is wrong in this confession.

The Bank’s reputation has not been riding high for many a year; indeed, since before the financial crisis and going back to its darkest day: Black Wednesday, when George Soros made $1bn shorting the Pound as the Bank foolishly attempted to keep it in the Exchange Rate Mechanism. In the BoE we have an organisation which, as far as 21st century money goes, is as out of date as a gentleman’s club, which even after all the superficial changes, it still is. In fact, it could be said that the end of the line in terms of the Bank’s reputation and indeed, that of the City of London, came with Big Bang in the 1980s when over regulation was supposed to have been replaced by self-regulation. Initially, until “greed is good” allegedly got out of hand, this was a positive development.

But now we have over-regulation, which has become as totally out of control as it is expensive and ineffective. We have seen what have been multiple stable doors closed after the horse has bolted, from PPI to Libor to Forex and insider trading. The reality nearly 30 years after Big Bang is that I would doubt that either the FCA or the SFO could point to anything they have prevented in terms of financial crises or disasters, just to events they have investigated and for which they have levied fines, long after they were relevant.

This looks very much to be the case in terms of the latest sad twist in the attempt at policing the markets, which has consistently been either too soft, too hard or simply inappropriate. It is made even worse by the way that both the FCA and the SFO have over the years been struggling to justify themselves in the face of ballooning costs and periodic embarrassments – the Tchenguiz affair was perhaps the worst. The SFO went for what should have been a soft target – outsiders, when the markets were in turmoil – and they still couldn’t win. Indeed, it is interesting that in the run up to the General Election both the FCA and SFO are being wheeled out into the limelight and given dragons to slay, as if this might convince us of their worth.

But although the latest news of the SFO’s investigating the Bank of England is being reported with great reverence by the financial media, as if this shows how serious the Coalition regards propriety in this area, upon stepping back it is as ridiculous as a Monty Python sketch. It really is an example of the tail investigating the dog, or the poacher the gamekeeper. The authority of the FCA and SFO comes from the Bank of England, the result should either be a whitewash or if there really was serious market abuse, a total conundrum. What would happen? A massive fine for Mark Carney and associates? The SFO closes down the Bank of England. Who pays – the Treasury, the taxpayer again?

My final gripe is that apart from regulators sticking to what they are good at – being tough on the parking tickets and soft on the axe murderers, all the efforts from now should be on prevention rather than going back years ago to one off events which will not be repeated and probably cannot be regulated against anyway – such as the banking sector collapse. What can be said, without even looking back at the lines of communication in Threadneedle Street in 2007-8 is that the situation was so exceptional that rules had to be broken and this was done to avert disaster. Going through an expensive process with a fine tooth comb in 2015 and beyond is not likely to help anyone, not even the SFO.