Mishcon de Reya page structure
Site header
Main content section

Mishcon Regulatory Presents: Holding Regulators to Account

Posted on 7 March 2022

The Mishcon Academy Digital Sessions. 
Martine Croxall, Presenter
BBC News

Good afternoon and on behalf of Mishcon de Reya, may I welcome you to today’s event entitled Holding Regulators to Account.  My name is Martine Croxall and I am a presenter with the BBC News channel.  They say there’s nothing new under the sun.  Nearly twenty years ago the House of Lords Select Committee on the Constitution sought establish for what and to whom regulators are and should be accountable, whether regulation served a clear enough purpose to be in the public interest and whether the level of regulation should remain a permanent feature of our polity.  Many judge that regulatory burdens are increasing, sometimes unnecessarily, and where unnecessary, it should be removed.  Well those questions apply at least as much today as they did then.  These days regulators are notable not just for their dizzying number but also for the powers that they wield.  These include imposing penalties, levying fines and even creating secondary legislation.  This can carry controversy and cost.  In some spheres effective regulators are needed more now than ever but where they have increasing reach into commercial and personal lives, how can they properly be held to account for their actions?  Worth remembering the words of George Soros, “Markets are imperfect so you do need regulation, knowing that the regulators are also human.” 

Our panel today, joining us from the House of Commons and hoping that the Division bell doesn’t go, is Tracey Crouch, Member of Parliament for Chatham and Aylesford since 2010 under the Conservative Party, Dr Michael Grenfell is Executive Director of Enforcement at the Competition and Markets Authority, a post he has held since 2015, Adam Epstein, the reason that I am here at all, is a Partner at Mishcon de Reya and has been for 20 years where he leads the Regulatory Group that encompasses a broad number of sectors and regulatory wide services.  So, we are in good hands with our panellists and thank you all for being here.

So first of all, let’s start to talk about the architecture of a regulator.  Tracey Crouch, you’ve concluded that we need a football regulator.  Could you just briefly explain how you came to that conclusion.

Tracey Crouch MP

There have been so many issues in football that have just not been properly regulated by the authorities that exist at the moment and in fact we found that there were some obvious examples where the regulation had completely failed, Bury Football Club being an example of that, where people were going to, who they thought was the regulator which in this case was the English Football League and the English Football League turning round and saying well actually, we’re just a competition organiser, go to the FA, and the FA would say well this is definitely not within our remit and then unfortunately, as a consequence, Bury disappeared.  So, that’s partly why we decided that an independent regulator should be established and it was a very important thing for us to look at because we’re not talking about what happens for 90 minutes on a football pitch, you know, that’s nothing to do with the independent regulator, we were looking at how can regulation ensure that we have football clubs sustainable for the future and that we don’t have another Bury Football Club or Macclesfield or Wigan and… or, as we’re seeing right now, you know, potentially Derby.  We wanted to make sure that we can ensure through proper financial regulation, you know, good governance of those clubs and fans got that and they were really instrumental in designing and shaping quite a lot of the recommendations.

Martine Croxall, Presenter
BBC News

Tracey, for the moment, thank you very much.  Adam, you have the job of tackling regulators when in your view they overreach or your client’s view, they overreach.  We’ll come to how you do that in a little while.  What difference does it make in how a regulator is constituted?  Whether they’re a statutory body or not?

Adam Epstein, Partner
Mishcon de Reya

Well it can make a huge difference so, I suppose it’s not so much whether they are statutory, it’s more whether they are at one end of the spectrum whether they are controlled by the state and it’s a governmental organisation and whether at the other end of the spectrum, you have complete and utter self-regulation.  So, as a solicitor, what used to happen prior to the Legal Services Act in 2007, was that all solicitors by law needed to be authorised but who were they authorised by?  They were authorised by the Law Society, which was effectively our trade association or trade union and there was a feeling in some quarters that maybe that wasn’t good enough to be self-regulated like that because whilst it might suit the purposes of the people who were being regulated, i.e. the lawyers, it didn’t necessarily suit the consumers in quite same way and it was felt that there should be that move away from that self-regulatory aspect and what you can have is, models that actually combine a fair bit of the two so, you can have something directed by the State but then you can have self-reg… that you can have the State directing that there’s a certain amount of self-regulation that does that.

Martine Croxall, Presenter
BBC News

Lots of nodding from your co-panellists about the importance for independence and also the need to move with the times.  Michael, how does the CMA manage to do that because you’re being asked to do more and more things in a world that seems to be changing at warp speed sometimes?

Dr Michael Grenfell, Executive Director
Enforcement at the Competition and Markets Authority

Yeah.  Um, we need to keep abreast of what’s going on, we need to keep abreast of what bothers people and our legitimacy – that’s true of every regulator – depends on the public being prepared to put up with the powers that you described earlier, the interventions that you described and the sense that well actually, for all that, they’re doing some good, whether it’s the CMA of a new football regulator or the FRC or whatever and that means we have to be alive to public concerns, alive to what’s going on, as well as, I mean the other aspects of moving with the time are, there are new techniques through digitalisation for being able to assess evidence and so on and we need to be on top of that and one step ahead of any malefactors whom we might be investigating. 

Martine Croxall, Presenter
BBC News

If we look at the sort of the nature of accountability, Adam, how important is individual accountability would you say, in the professions particularly?

Adam Epstein, Partner
Mishcon de Reya

Well, there’s been an increasing trend towards individual accountability over the last few years and I think the rea… well, obviously actually, the reason for that is because organisations don’t themselves do things wrong, it’s people who within them who commit some form of misconduct so, the theory is that if you can hold individuals accountable then you’ve got more chance of making sure things don’t go wrong but clearly, if you’ve got big, complex organisations, that causes difficulty because how can you say it’s this person or that person who is actually at fault for it?  And so, Tracey mentioned before, Financial Services and the Financial Conduct Authority and having looked towards them in terms of the financial side of things as a model.  And they’re often held up as a bit of a gold standard but one of the things that they brought in a few years ago, which people often hold up as something to aspire to, is the, a Senior Managers Regime and this Senior Managers Regime was saying somebody has to put up their hand to say “I am responsible for this aspect” and that doesn’t mean to say that, and they have to sign on the dotted line and they have to write something that sets out exactly what they are responsibility is and that doesn’t mean to say that it’s what we lawyers call strip liability, that that means if something goes wrong then that means you are automatically liable but it does mean to say, you have to be able to demonstrate that you took reasonable steps so that you shouldn’t be held accountable.

Dr Michael Grenfell, Executive Director
Enforcement at the Competition and Markets Authority

In my world and competition law enforcement, we also have a degree of individual liability so, the Competition and Markets Authority can secure the disqualification of directors of companies that have broken the law and we can prosecute individuals who were directly involved in the most serious anti-competitive practices.  And it’s a useful thing to have because nothing concentrates the mind of directors and individuals knowing that they might be personally accountable and may suffer serious consequences but it’s not enough, you also need corporate responsibility because you, first of all, it’s not good enough for the head of an organisation to hang certain individuals out to dry and just wash their hands of it and you really want the shareholders and the whole organisation to be behind compliance and to be responsible when things go wrong so, I think a mixture of the two is probably the optimum. 

Martine Croxall, Presenter
BBC News

Tracey, your review suggested and Owners’ and Directors’ Test.  What would that test be?  Why do you need it?

Tracey Crouch MP

Well, we already have an Owners’ and Directors’ Test in football in existence but it is a single test and one of the things that we suggested was actually splitting the test because actually you need different skills to be an owner and a director, you know, for an owner it’s about do you have the money, do you have the cash, you know, can you fulfil the requirements of basically providing a financially sustainable future for your football club but for directors it’s about, you know, it’s good corporate governance, it’s about having the skills that you’d expect a director of any business to have and you know, actually, in a lot of football, not all of it but in a lot of football, there’s really poor corporate governance structures in place and so you know, we have clubs in the pyramid at the moment who the chair and the chief executive are one and the same people, the owner and the chief executive are the same people and there’s no board.  Now, and so the decisions are being taken by one person with no accountability and that’s an incredibly dangerous position to be in so, the test is in existence and actually the Owners’ and Directors’ Test is not a bad… the one that’s held by the premier league is not a bad test but you know, an independent regulator we thought would stress that test more than perhaps is currently being done. 

Martine Croxall, Presenter
BBC News

Should, Adam, the conduct of someone in their personal life have any bearing?

Adam Epstein, Partner
Mishcon de Reya

That’s quite a vexed question actually, whether it should or not because you can see how if somebody is dishonest, for example, you wouldn’t want them working in the City and so you could see there are obvious reasons why people should be prevented from having certain types of roles when they have done certain things in their personal life but it’s actually a difficult question to know quite how far it goes so, for example, the way the Courts have looked at it is, they’ve said what you have to do is you have to look at what the person has done in their personal life, I mean it’s normally a conviction of some sort, you look at what the person has done in their personal life and then you look at what the profession requires of the standards of behaviour and you try and see whether what’s been done in the persona life means there’s some kind of breach of the professional standards or there’s likely to be a tendency not to want to uphold those standards.

Martine Croxall, Presenter
BBC News

Michael, the general competition powers at CMA enforce only really relate to undertakings rather than individuals, don’t they because that was the European Union framework but there was a sense that individuals should be held culpable in some ways so it became an offence if individuals  for example were involved in criminal cartels.  How often though have cases like that been brought?

Dr Michael Grenfell, Executive Director
Enforcement at the Competition and Markets Authority

So, there have been a few and a few people have been sentenced.  A difficulty with it is a jury needs to be persuaded that a crime has been committed and for most people, they understand that grievous bodily harm is a crime or burglary is a crime but a competition law offence sounds like some remote thing you see in the business pages that isn’t really a harm and getting that across and helping people to understand that that is pernicious, in the way that economic crimes like theft are pernicious, is a very important precondition to getting helping juries to convict. 

Martine Croxall, Presenter
BBC News

Let’s talk about challenging regulators then when things are perceived to have gone wrong.  Adam, what sorts of overreach by regulators do you see?

Adam Epstein, Partner
Mishcon de Reya

I suppose it’s most marked in my practice in enforcement cases.  So, if regulators are deciding that they want to impose something very severe on an individual or a corporate, either actually through their supervision or through their enforcement, that’s when you might see it.  I think the first thing that you have to do is, you have to really ensure that… you have to stand up to what’s not right and you have to stand up to the regulator.  Simply being nice and saying yes, doesn’t do it.  So, the first thing is you have to stand up but you have to stand up, in my experience, in an intelligent way that’s going to make sure that you can get the result that you need so, for example, clients come to us thinking actually, standing up to the regulator means being as aggressive as you can possibly be and actually, being… you can make all the same points but being aggressive as you can possibly be doesn’t necessarily get you there and it’s often actually really counterproductive.  Because what you have to remember is that it’s the regulator who is determining what your fate is so, if you’re being recklessly aggressive to them in how you defend the case and they have to think, is this an organisation I want to put out of business, can they be trusted to uphold our objectives, then you can easily see how the regulator might think actually, they can’t be trusted because they don’t really get it, they don’t really understand.  So, it’s a bit of a, it’s a bit of a, it’s a bit of a strategic came to try and make sure that you can respond forcefully but yet at the same time you can be trusted and you can remain in business and also so that you don’t take many bad points in order to be as aggressive as possible because they will, they will inevitably end up corrupting your good points and I think that counts quite, quite heavily against people.

Martine Croxall, Presenter
BBC News

You were nodding a lot there, Michael.  What sort of challenges does the CMA see and how do people come at you when they’re feeling defensive?

Dr Michael Grenfell, Executive Director
Enforcement at the Competition and Markets Authority

So, I was nodding because I agreed, we don’t expect people just to say yes to us, we expect people to keep us on our toes but exactly as Adam said, that we want people to be trustworthy and honest so that we can build a relation of trust and then we will take seriously the points that are made where they say, well your first thought is wrong and so on.  People can challenge us in the Courts, there is an appeal mechanism, a judicial appeal mechanism where if we overreach or we get it wrong on the law or on the evidence, we can be told we’ve got it wrong and our decision’s annulled.  But we also have to be careful that in not overreaching and in deferring to both what the law requires and the sense that we mustn’t have a chilling effect, that we are not inhibited from doing what we’re there to do which is to protect the public and you know, there is a risk of overreach but if one thinks about things that have happened, not just in my field, but if you think about the financial crash, people say, probably rightly, that either there was insufficient regulation or the regulators didn’t apply it with sufficient vigour, if you think about the Grenfell Tower, people say that a lot of harm was caused because the regulators weren’t on the job properly and in my area, for example, a lot of people say looking at competition authorities the world over that as digital platforms have got more and more powerful, a lot of the competition regulators were underenforcing in the last ten years, weren’t quite aware what was going on.  So, we have to be careful we don’t overreach but never forget we’re there to protect the public.

Martine Croxall, Presenter
BBC News

Let’s bring Tracey in because if a football regulator were to overreach or get something wrong, what sort of remedies would you imagine would be available to those who’d complained and had their complaint upheld?

Tracey Crouch MP

Well, I suspect that they would… it would end up in legal case, to be honest with you, I mean football is quite litigious in many respects and you know, and the owners of football clubs are very protective and very defensive and so, if the regulator ended up doing something it shouldn’t have done then I suspect it would end up in court but the… I was strongly advised and guided by lawyers, so a lot of what we designed and the legislation that I hope will be introduced in the Queen’s Speech, will cover a lot of that, those potential outcomes.  I would hope that because there would be independence and goes back to the original point, you know the independence of a regulator would mean that it would, as Michael was saying, develop the relationships but not the sort of kind of closeness where it wouldn’t actually necessarily get to that point of overreaching, I would hope.

Martine Croxall, Presenter
BBC News

Well, that brings us to the end of today’s event.  I’d like to thank Tracey and Michael and Adam for being our panellists and on behalf of Mishcon de Reya, thank you to you for joining us.  Have a very good evening. 

 

 

The Mishcon Academy Digital Sessions.  To access advice for businesses that is regularly updated, please visit mishcon.com.


Visit the Mishcon Academy for more learning, events, videos, podcasts and reports.

How can we help you?
Help

How can we help you?

Subscribe: I'd like to keep in touch

If your enquiry is urgent please call +44 20 3321 7000

I'm a client

I'm looking for advice

Something else