Justin's case

Justin Gatlin’s win over the great Usain Bolt in last night’s 100m final at the World Athletics Championships is a reminder that life does not always run to the script that the majority of people might wish. For those of you not athletics aficionados, Gatlin has twice been banned by the IAAF for doping offences. As one person tweeted last night, once is a mistake but twice is a choice. There are lots of allegations surrounding Bolt himself: Maybe he has doped, maybe not. But he has not been caught let alone banned (TWICE!!). Without wishing to turn all moralistic, there is a serious point about credibility here. Unless the rules are applied effectively and sanctions imposed which make cheating an unattractive option, there will always be a temptation to push the boundaries.

The same could be said of any organisation which knowingly breaks the rules. An obvious example is the conduct of banks, many of which have been heavily fined for transgressing sanctions rules (German automakers who falsified emissions data find themselves in the same position). In the UK, the FCA has levied fines totalling £3 billion since 2013 (of which only around 0.6% has been levied on individuals). Over the period since 2008, banks globally have paid $321 billion with the US regulators particularly adept at forcing banks to pay up by threatening to curtail access to the global dollar payments system. Depending on which side of the divide you sit, the actions of regulators to extract large sums of money from the banking system either represent an extortion policy of which Al Capone would be proud, or it is a genuine attempt to hit banks where it hurts in a bid to force a change of behaviour (I suspect both are true).

However, behaviour is changing. Banks are much more careful these days about the kinds of business they undertake as the compliance burden rises. According to Boston Consulting, the number of regulatory changes per year more than tripled between 2011 and 2016. Each individual regulation effectively represents a tax on activity, because it requires additional oversight with an associated implementation cost and failure penalty. Regulators are currently particularly keen to clamp down on money laundering in a bid to combat terrorist financing, and as a result banks are actively turning away customers if it means that the potential risks exceed the potential gains. Mis-selling risks are another area of particular scrutiny, and given the concerns surrounding the accuracy of Libor submissions in recent years the FCA recently announced that the system whereby Libor is set by quotations will be replaced by a transactions-based system (a sensible move, even if it is not quite clear how this will work in practice).

It is interesting, however, to note that the period of punitive regulation appears to be drawing to a close. BoE Governor Carney warned in March about regulatory fatigue and in its latest Financial Stability Report, the BoE noted that “given the progress made and the lessons from work to date, the FPC is now moving to the next stage. Its focus is on systemic risk, rather than risk to individual companies or consumers.” Carney also warned last week that there should be no rolling back of regulation. In other words, a lot has been done in recent years and banks need time to adjust to the higher costs of regulation which have done a lot to shore up banking sector stability.

In the case of financial regulation, it thus appears that the regime of punitive sanctions has had a significant impact on banks’ behaviour and they will emerge stronger and safer. This is akin to the situation in which Justin Gatlin finds himself. He broke the rules, was caught and banned for a total of five years but has since run “clean.” Like the banks, Gatlin profited from cheating and indeed his current physical condition, which means he is still able to run world-class sprint times even at the age of 35, may have something to do with the drugs he took earlier in his career. But there are differences between the two situations. Gatlin’s actions were those of an individual who took a conscious decision to cheat in order to benefit his career. Whilst there were individuals within banks who made similar decisions, it is fair to say that institutions did not (to my knowledge) engage in systematic cheating, though they can be accused of turning a blind eye to certain actions for which they have been punished.

I don’t like the fact that Gatlin won last night and many people (of which I am one) believe he forfeited his right to compete at the highest level following his second drugs offence. He demeans his sport and sets a bad example for others to follow, especially younger athletes. In this sense the IAAF fails to police its sport adequately. At least the financial regulator will come down hard on individuals which it finds guilty of breaking the rules as new regulations come into play. Indeed, over the last three years more individuals have been fined by the FCA than firms. In this area, IAAF President Sebastian Coe perhaps has something to learn from financial regulators.