Regulators WANT a Bad Deal for Investors. Why?

In the last week Deutsche Bank have been reported as intending to off-board 3400 clients, Barclays 7000.  These two announcements, quietly slipped in when everyone is trying to wind down for Christmas, are just the latest in a wave of such announcements from many banks. Any bank that has carried out this exercise, and most are in the process of doing so, has given the same explanation.   The huge rise in cost in maintaining each client due to the heavy increase in compliance and regulatory requirements. So liquidity and the ability to get he best prices is being closed to investors. Add that to the threat of MIFID 2 preventing banks providing free research and a large number of small fund and wealth managers will be forced to merge or close.

The barriers to entry are rising sharply - a number of possible new entrants to the hedge fund world tell me that the cost has risen from around $500k to $2mn+ in the last couple of years.

It's not exactly leading-edge economics to suggest that higher barriers to entry and less competition lead to higher fees and less pressure to perform. Even more worrying, I recently approached a large international self-regulatory body to set up a lobby group to explain to regulators how damaging the trends were becoming. They declined to take a lead - they believe that their "larger members could lobby more effectively" - in other words the giant players who are already trying to dominate financial markets, even trying to compete with banks, should set the agenda.

The  question is "why are the regulators allowing these trends to develop?". It seems unlikely that regulators cannot understand the implications of their actions. Gone are the days when regulators are staffed by private-side rejects.  Most are staffed by highly competent and knowledgeable industry experts who understand perfectly well the consequences of their actions.  The logical answer is that this must be part of the concerted campaign by governments everywhere to interfere with free markets, artificially control volatility, and  "be in charge". Investment for economic gain is no longer to be encouraged, it is only to be allowed if it suits governments.

This week The Economist rightly published an editorial rant against "China's digital dictatorship".  It might do well to start a similar campaign highlighting the constant theme of Western governments under the guise of "regulation" creating the greatest threat to free markets and freedom of economic activity since the 1930s.