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Mission Impossible: Bank of England’s Andy Haldane may be taking over the helm at FCA

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The answer to the former is I really hope so and, like the A Team of the TV series, he and selected colleagues can surely prevail.

The prospect of Haldane stepping into the FCA’s hot seat is hugely exciting. He is, arguably, the brightest star in the UK financial firmament. He totally gets the importance of equity investing and crowdfunding, as well as SMEs. On the other hand, the recidivists at the FCA don’t understand the first, are terrified of the second and are not interested in the third. Haldane would not just be a breath of fresh air at North Colonnade, he would be a veritable tornado.

Obviously Haldane’s speeches haven’t had the attention that any pronouncements that Mark Carney or George Osborne are given, so it is well worth highlighting some of his thoughts here. 

In a speech he made in April 2014 at the London Business School, Haldane drew attention to the fact that, thanks to the absurdity of accounting and regulatory requirements, UK institutional pension funds had cut equity holdings from 50 per cent in the late 1980s to under ten per cent today. The consequences for our economy are dire.

To quote Haldane: “The consequences of de-equitisation, for the financial system and the wider economy, may be just as dreadful as the word itself. Equity does a much better job than debt of sharing risk between borrowers and lenders as repayment terms adjust automatically with servicing capacity. Equity is also better able to support the financing of long-term investment projects because it is perpetual. So a world without equity is likely to be one with poorer risk-sharing and weaker long-term investment.”

Of course every time bond (debt) yields go down the regulator demands that the pension fund manager buys yet more bonds to cover the further income shortfall. This is an absurdity that would sit very well at The Mad Hatter’s Tea Party, but nowhere else. It is not beyond possibility that Haldane, once installed at the FCA, can break this spell once and for all.

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But the good news doesn’t stop there. In an interview with the Independent back in December 2012 Haldane made a series of incredibly enlightened statements on the future of SME funding. He started by observing: “The mono-banking culture that has existed since the 1990s is in retreat. We are now seeing a much more diverse eco-system springing up with new non-bank groups offering peer-to peer lending and crowd-funding, a more flexible way for companies to raise equity from angels.”

He then went on to warm the cockles of my heart (and many others no doubt), but must have sent a shudder through the dinosaurs at the FCA, when he said: “I am congenitally pessimistic about most things in life, but on this I am really optimistic: it’s a time of opportunity knocking for finance. Hopefully, the growth of peer-to-peer lenders, such as Zopa, Funding Circle and Thin Cats – and those involved in crowdfunding, such as Crowdcube – will help solve the problems we have in the UK with lending for SMEs.”

But he didn’t stop there. Just to make sure no one could be in any doubt about how he expected finance to change, he concluded: “These companies are tiny today but so was Google a decade-and-a-half ago. IT has changed every other industry such as film, music and even football clubs, so why not finance? With open access to borrower information – which is held centrally and virtually – there is no reason why end-savers and end-investors cannot connect directly.”

Taking all of the above I can only conclude that Haldane would change the culture and financial understanding immeasurably for the better. Such a transformation would work wonders for the growth of our economy. However, would he be allowed to? Would the entrenched recidivists in North Colonnade smother him? Well either a bit of luck has come along, or possibly the wily George Osborne has made that luck. It just so happens that three of the most senior FCA board members have reached the end of their tenure.

One of these is the very strange Mick McAteer, who I have on record as saying that he does not believe the typical consumer is very good at managing longevity of risk and that is why annuities are wonderful – oh dear! Another is Sir Brian Pomeroy, who has stoutly defended the FCA’s foot dragging on releasing the report into the HBOS fiasco.

Head hunters have been appointed to find replacements. No doubt George Osborne will be consulted! Add in the judicious removal of one or two of the Executive (may I recommend Christopher Woolard), and Haldane’s mission doesn’t look so impossible.

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