John Kay's latest essay on the current state of the financial sector, published on the heels of a report he just released for the British government on state of financial services, is well worth reading:
In the equity investment chain, asset holders and asset managers need to be trusted stewards of savers’ money. Company directors need to be trusted stewards of the assets and activities of the corporations they manage. In the absence of such trust, intermediaries become no more than toll collectors.
It is hard to see how trust can be sustained in an environment characterised by increasingly hyperactive trading, and it has not been. Trust is essentially personal and cannot easily be found in a dark pool. Impersonal trust can be established only in a rigidly disciplined organisation – the kind that retail banks were once but are no longer – or by regulation of a ferocity that has not been achieved and is probably not achievable.
He also has this great observation of the ways analysts and regulators are naturally captured by complicated industries that rely on
behavioural regulation, designed to combat inappropriate incentives by detailed prescriptive rules. The outcome is regulation that is at once extensive and intrusive, yet ineffective and largely captured by financial sector interests.
Such capture is sometimes crudely corrupt, as in the US where politics is in thrall to Wall Street money. The European position is better described as intellectual capture. Regulators come to see the industry through the eyes of market participants rather than the end users they exist to serve, because market participants are the only source of the detailed information and expertise this type of regulation requires. This complexity has created a financial regulation industry – an army of compliance officers, regulators, consultants and advisers – with a vested interest in the regulation industry’s expansion.
I think you can see variations on this in all kinds of policy worlds (foreign and military policy especially), and in technology and futures research. Futurists don't regulate the future in any meaningful way, but they and industry analysts do have a close relationship with their objects of study and clients, and it's "natural" that a kind of regulatory capture occurs in these relationships.
I can only hope that he's correct that more people now recognize that "the sector's problems are not the byproduct of unpredictable events but arise from a wrong turning in the culture of an industry that has come to prioritise transactions and trading over trust relationships."