Anthony Hilton: Time to end this ‘one size fits all’ financial regulation

One of the brightest things banking regulators have done since the crash is to develop the concept of systemically important financial institutions.

What this recognises is that all banks, insurers and securities houses are not all equal in the damage they can do; some are much more equal than others.

By extension, rules and regulations designed to impose mild restraint on the giants of the industry can amount to damaging overkill when applied to the typical smaller firm.

The answer is a two-tier system of prudential regulation whereby those firms with the potential to put the system at risk are subject to much more intrusive supervision.

Now Guy Jubb, global head of Governance and Stewardship at Standard Life Investments, has suggested something similar for his world.

In an address to the Chartered Institute of Management Accountants’ President’s Conference yesterday he told members of that body that it was time to rethink what we mean by public interest entities.

At present in Europe, any firm with a publicly listed security — debt as well as equity — is so classified.

This captures thousands of mid-sized and some smaller firms as well as subsidiaries of corporate giants whose parents may be outside the EU but which have issued bonds locally at some time.

Jubb’s thesis is that there is not actually a lot of outside public interest in the activities of smaller firms — even if they are listed — and their doings, in turn, have minimal impact on wider society.

But they are trapped inside this definition and it matters because much EU regulation which was not designed with them in mind, nevertheless catches them.

A vast amount of this plethora of corporate governance is, in fact, aimed at the major businesses — those which are big enough to have a serious impact on the general public and society at large.

In effect, this means the major banks, utilities and employers such as Volkswagen.

For all the rest in corporate life, the regulation is over the top and expensive but they nevertheless have to go along with the giants and bear the full burden of the various measures of increased corporate governance, audit reform and transparency.