Sunak fuels up for dark journey into City’s shameful and scandal-ridden past

Quite possibly the scariest story of the day, even the week, emerged from HM Treasury courtesy of its plans for the future of the City of London.

The chancellor, Rishi Sunak, outlined what he described as a “once in a generation” opportunity for “the reform of UK financial services regulation following the UK’s departure from the EU”.

Now, I admit that doesn’t look very scary. It contains the word “regulation”. It includes Brexit and the EU. So a good cure for insomnia?

Read through Sunak’s announcement, and mull it over for a bit, however, and you’ll find that it’s anything but. It tops what for me is the scariest film of the year so far. For the record, that film is The Night House, which you can get, oddly enough, via Disney Plus. The Disney reference is appropriate because the chancellor appears to be preparing to hand the City of London a pair of Mickey Mouse watchdogs.

He wants to set the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) “an objective to facilitate the long-term growth and international competitiveness of the UK economy”.

They will be handed powers to replace EU law with their own rules so the UK’s regulatory system will be “more agile and focused on driving growth”.

Let’s first consider the bit about the “international competitiveness of the UK economy”. One interpretation of that is Sunak putting Lewis Hamilton in the driving seat of a British Formula One car with a view to winning a race to the bottom.

Singapore lightening the load on its banks? We’ll look at our rules and do the same thing. Aussies deciding it’s time to go soft? The FCA and the PRA will be around to your HQ with a nice new set of fluffy pillows in a jiffy.

All this feels, at least in part, motivated by the EU’s refusal to grant equivalence to the post-Brexit City of London, with financial services having been left out of the now faltering Brexit deal. To my cynical eye, it’s Sunak saying: “Yah boo sucks to you, EU. If you won’t let us play, you’re going to have a font for dirty money and dodgy dealings on your doorstep.”

Maybe Brussels ends up feeling a little queasy at the prospect, but it is also smart enough to understand that the UK is engaged here in a zero-sum game. Whatever benefits London may accrue from this new approach, it will inevitably rebound on it at some point. It always does. Trouble is, it will rebound on the rest of us at the same time.

Agile regulation, to encourage growth? Surely that’s a good thing? Surely it’s sensible for regulators to operate like that? Sorry, but no. History has repeatedly demonstrated the dangers when you focus on promoting untrammelled growth in financial services unimpeded by effective regulation.

You can find an excellent case study of how that can go horribly wrong in Shredded, journalist Ian Fraser’s definitive account of the fall of Royal Bank of Scotland.

It takes aim at the former Financial Services Authority chair Callum McCarthy, his chief executive, John Tiner, and the last Labour government. The book argues that they were “so focused on making London the destination of choice for international banks and financial institutions and so proud of their ‘light touch’ approach that they were blind to the malpractice and risky behaviour in the UK banking sector.”

That behaviour cost British taxpayers billions of pounds in bailouts when the nasty stuff hit the fan, money which was never fully recovered. It delivered a devastating blow to the UK economy. It took a killer pandemic and Brexit to top the shock that the financial crisis delivered.

Yet here we are again, thanks to that Brexit, with Sunak having the audacity to claim this new, dangerous approach as a benefit of an edifice that was toppling almost from the date of its construction.

The best of it is that Sunak is a former banker. He should be well aware of this. He was working in hedge funds during the active phase of the crisis, having earned his spurs at Goldman Sachs.

In his wrap-up quote, he does say that he wants his plans to support the UK economy “without diverging from our continued commitment to high international standards”.

But that feels sotto voce, a whisper tacked on at the end of a scream.

The only real beneficiaries of this beyond the bankers, who are almost never called to meaningful account when things go wrong, will be people like me who make a living from writing about financial scandal. So if you can’t send your money overseas, you might want to put it under your bed. This has the potential to get very ugly, very quickly.