Tony Blair didn’t play in the XV at Fettes College, but he would have known Bigside, the school rugby pitch. Its north-east corner sloped down into a muddy bowl where canny kicking tactics could pin back an opposition close to its goal line at the bottom of the slope. Everyone knew the slope and it was accepted as a fact of schoolboy rugby life in Scotland. If someone thought to level it up, they have never done so.

Schoolboy rugby players seem to be the only people left who put up with an uneven playing field. For most of us, when the going gets bumpy, the first instinct is to appeal to the referee – usually the government. Exporters complain about the high value of the pound, hauliers complain about lax European regulation, clothing manufacturers about cheap imports, motorists about oil company rip-offs, suppliers about supermarket profits. If only the government would wheel in the cosmic JCB, all could be made nice and flat and fair again.

Statutory regulation is the only piece of flattening equipment at the government’s disposal but it is clumsy and cannot run over economic road-blocks like the exchange rate or scores of other disagreeable but politically sensitive issues which lie outside the range of its scoop. Regulation has its limits.

Yet the rule book grows fatter by the day, for obvious reasons. Politicians for their part are in the business of snap responses, and every politically sensitive problem has an instant regulatory solution. Remoter ideals, like better education which achieve results only over decades, cut little ice in the polling booth. Businesses and big institutions, in turn, don’t mind new regulations if, by complying with the letter, they are left free to roam, as the strongest predators, through the market jungle.

The savings and investment industry has not been short of politically sensitive issues and naturally the knuckle of the regulator is knocking increasingly urgently at its door.

Regulation here is nothing new. UK banks and insurance companies have long been required to meet stringent capital adequacy rules. The London Stock Exchange has always set listing requirements for quoted companies. This sort of regulation has a limited scope and applies in clearly defined circumstances. Compliance is capable of being enforced because it is determined by reference to specific objective criteria. Such regulation affords a degree of basic quality assurance and protection to all customers of the securities industry.

Sadly, but unsurprisingly, the extension of regulation in the financial world since the Financial Services Act of 1986 has not prevented some of the grossest abuses in UK financial history – pensions mis-selling by the biggest institutions in the country; endowment mortgage ramps; the Barings bust, and now the Equitable debacle, to say nothing of the risks posed by a daily deluge of financial products, hyped up by selective advertising and thrust down millions of throats by commission-hungry salesmen.

Rules governing financial advertising and the ‘suitability’ of products for a customer’s requirements were designed to prevent abuse, but they are virtually powerless to frustrate the creation of misleading impressions or to prevent commission-driven peddling and ill-advised commitments by credulous or lazy investors.

The trouble is that transactions between financial service providers and customers are best based, not on a contract whose terms are definable but, like matrimony, on a personal relationship whose ingredients are not. Read the banns, sign the register or even, in the grotesque manner of today, draft a pre-nuptial agreement, but don’t expect any of this of itself to make a marriage work.

So, as an election looms, and the authorities grapple with a response to the chapter of accidents which is the story of the financial services industry over the past decade or so, the true cost of reliance on form rather than substance is worth noting. Regulation has shifted attention away from the personal accountability of financial institutions for their conduct and the responsibility of individuals for the consequences of their own decisions. Instead we have a kind of quality standard mentality, a dumbing down of an individual’s duty of care, the only effective safeguard he or she possesses. Equitable Life’s promises to pay what turned out to be sky-high annuity rates weren’t illegal, however stupid they might have been. They were the product of an ‘anything goes’ opportunism where the sense of accountability between an institution and its clients was subordinated to the pursuit of market share and size for its own sake.

Regulation has also run into the buffers over the issue of insider trading, now a criminal offence. The smart executive who sells his shares before his company sends out a profits warning to the rest of the world is meant to get caught in this net. But does he? How do you regulate for the winks, the nods, for the chap who suddenly can’t hole two-foot putts because he is in takeover talks? Or how can you wrap a veil round the thousand and one secretaries, lawyers, accountants, and PR men scratching about the secret files in every takeover deal? Few company deals reach the public light of day without the Stock Exchange price reflecting the whiff of a leak. Successful prosecutions for insider trading have been few and far between.

If quick-fix regulation fails to protect, one wonders what might work better, and sometimes the answer will be nothing. Investors and savers who inform themselves so little about the financial world and their investment requirements as to part with thousands of pounds on the strength of a TV advertisement can’t be protected.

Real protection for financial customers and consumers will only be achieved when the emphasis shifts from wrapping rules round whatever ugly skeleton falls out of the City’s cupboard to treating the symptoms and to prevention. That means educating consumers. It means government introducing the rudiments of the financial facts of life to the core school curriculum. It means local authorities offering financial courses as part of their community education service. Lastly, it means encouraging practitioners, particularly the big investment institutions, to recognise that it is not in their commercial interest to pay mere lip service to rules in order to exploit unsophisticated customers and that their future depends on offering transparent, value-for-money financial services on the basis of a relationship of personal accountability and trust between provider and buyer. That need not in any way be inconsistent with the desire to earn a commercial return.

The result would be a halt to ineffectual regulation, a happier relationship between buyers and providers of financial products, and a soundly based profession instead of a chaotic bazaar. Like any commercial arena, the financial playing field will always be a bit uneven. But systematic foul play will only disappear when all the players on the pitch understand that unless they change their behaviour themselves, the game won’t be worth playing at all.

12 April 2001