Should regulators be elected?

Each of these events in normal times would have an impact on the regulatory outlook of their host nations as well as wider collaborations in the UN, EU, G7 and G20 forums. This year, however, has been largely overshadowed by the war in Ukraine and a shift of focus to the creation and imposition of a consistent global sanctions regime against Russia’s Validimir Putin and his oligarchs.

Although there have been many natural disasters in the past year, the spectre of gas and electricity shortages across Europe has at best postponed the ambitions of the 2021 COP summit in Glasgow and in truth probably tossed them into the recycling bin for a decade as countries scramble for energy security backed by massive state subsidies.

Perhaps the real challenge all countries face is how to make regulatory bodies independent, durable, accountable and, most of all, effective in the eyes of the public. It is all too easy for politicians to tinker with regulations under the slogan of “change”, when in fact they have done nothing more than a shuffling of organisational deckchairs, acronyms and “technocrats” who, unlike their sporting managerial counterparts, rarely face the limelight let alone the terrace chant of “you’re being sacked in the morning”.

Democratising regulation

Perhaps the most effective method of signalling the independence and accountability of regulatory bodies would be to follow the lead that many governments have taken by democratising other senior administrative and governance roles, such as regional mayors and crime commissioners. We should consider expanding this to central bank governors and senior regulators for data privacy, utilities and financial markets.

This broader “federation” of regulatory leadership and accountability would of course have a cost impact and getting the public to engage in sufficient numbers at the ballot box might be a significant challenge.

Assuming this approach was taken, what term should an elected regulator serve? How many times can they seek re-election? Can they be recalled mid-term and should their tenure coincide with a parliamentary term or be countercyclical?

Having decided to elect a regulator, the scope of their authority and lines of accountability to different tiers of government needs to be rethought. The major levers of control such as base rates, energy price caps and other steady state management processes would not be likely to change, but powers of direct intervention and forced administration of failing and malfeasant enterprises need to be strengthened.

It is worth noting at this point that the recent stabilisation mechanisms of energy prices in the UK and similar initiatives elsewhere in Europe were initiated by the market participants rather than regulators or politicians.

Elected regulators given broader powers would need to be able to distinguish between intervening and “meddling” in their domains. If they become aligned to broader party politics there will be a dangerous temptation to do the latter.

If senior regulators were elected, how much trickle down or regime change should there be into the junior ranks of their organisations, or should there perhaps be some sort of rotation scheme in and out of industry? Is being a regulator really a viable career path or should it be a series of poacher/gamekeeper roles all aspiring senior industry leaders need to have performed?

There is then the vexed question of how elected regulators might be remunerated and what key performance metrics they need to achieve irrespective of who their supporters are. Most of these metrics are likely to be externally set by politicians, and it also depends how each regulatory body is financed, whether from the central public purse or specific industry levies.

Over recent years, we have seen an erosion of parliamentarians with specific “real world” experience morphing into a chamber of representatives, many of whom now have degrees in political-science based subjects and have then climbed the career ladder as interns and advisors before seeking public election.

For elected regulators, perhaps there needs to be some sort of restriction on potential candidates given the detailed domain knowledge they need to be effective. However, while the prospect of the perennial UK spoof by-election candidate Lord Buckethead running the Financial Conduct Authority would be meat and drink to satirists, we should not forget that Ukrainian president Volodymir Zelensky’s previous career was in comedy and TV production!

Bringing transparency

Despite the major pitfalls discussed, and doubtless many others yet to be considered, the concept of publicly elected regulators has a significant attraction. If nothing else, it would shine a light into a set of government agencies which are not well understood by the general public and that have operated away from the glare of media spotlight with only occasional glimpses in televised Select Committee hearings.

As the world faces a cycle of recession, there is a temptation for politicians to lighten the regulatory burden to try and spur economic growth. What the public really needs is more efficient and accountable regulation, especially when synthetic markets become dysfunctional due to unforeseen external shocks.

Speaker’s Corner: A Speakers’ Corner is an area where open-air public speaking, debate and discussion are allowed. The original and most noted is in the north-east of Hyde Park in London