Dame Clara advocates ‘balanced’ regulation

Bank of England
By Robert Outram, The CA magazine

18 February 2016

Dame Clara Furse, external member of the Bank of England’s Financial Policy Committee, calls for a clear, prudent and proportionate system of regulation, which is sensitive to risks and opportunities.

Global financial centres like London are still vitally important, but in order for them to prosper, financial regulation must be “prudent and proportionate”.

That was the message from Dame Clara Furse, external member of the Bank of England’s Financial Policy Committee (FPC), speaking at an ICAS event at CA House in Edinburgh.

In a speech delivered just a few days before HSBC confirmed its decision to retain its worldwide headquarters in London, Dame Clara reaffirmed the Bank of England’s commitment to maintaining London’s pre-eminence as a global centre, providing financial services to customers and institutions around the world.

She said: “While the primary objective of financial stability is paramount for the FPC, the UK clearly has an interest in maintaining its strong position as a provider of these services.

“Provided the financial sector remains resilient – and our new regulatory framework seeks to ensure that it does – this is central to the FPC’s secondary objective (to support the UK Government’s economic policy, including its objectives for growth, employment and investment).”

Dame Clara, who was formerly chief executive of the London Stock Exchange, explained the role of the FPC and its objectives as firstly to identify and remove or reduce systemic risks to financial stability in the UK, and secondly to promote economic objectives.

Authorities need to remain alert to shocks, including those arising from the geopolitical and wider macro-financial environment, as well as the more ‘bread and butter’ risks that are visible on banks’ balance sheets.

In her speech, she considered the role of global financial centres in the context of financial “de-globalisation” and falling international capital flows.

Advances in technology mean increased opportunities for the financial system to operate in decentralised way, but as Dame Clara pointed out, specialised financial centres still enjoy economies of scale and it can be easier for regulators to keep an eye on activity, and any threats to financial stability, if markets are concentrated in one location.

She examined the reasons why financial institutions rise and fall, and noted that external shocks – such as wars – or serious policy errors can lead to their demise.

She said: “Authorities need to remain alert to shocks, including those arising from the geopolitical and wider macro-financial environment, as well as the more ‘bread and butter’ risks that are visible on banks’ balance sheets… we need a clear, prudent, proportionate system of regulation, which is sensitive to the different risks and opportunities posed by different kinds of activity.”

Dame Clara added: “International and global financial centres have historically played a crucial role in promoting both growth and stability. But policymakers cannot take their existence for granted.

“In a world where institutions and policy choices matter more than ever, a prudent and proportionate regulatory framework is essential to sustainable growth. That is what we on the FPC are seeking to achieve.”

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