I WAS standing in a queue at a Bank of Scotland branch just before Christmas. The line of customers was moving so slowly I was able to watch a little comedy act.
Tracey and her mum had come to open a new account. Tracey had been at school with Karen, the bank employee. They were also neighbours.
Tracey and her mother were exasperated as Karen kept insisting she couldnât let Tracey open a current account, as they were offering no electricity bill or council tax receipt. "More than my jobâs worth," Karen insisted. "Why?" asked Tracey. "You know who we are, you know where we live, you know where we work."
Karen, in that flat monotone voice officials often employ, responded: "Rules is rules. You might be an international terrorist or something to do with organised crime, like."
I groaned at this little example of pointless procedure until I read of the fine of Â£1.35 million imposed on HBOS because not every Karen had questioned every Tracey. Having filters to try to deter Mr Osama bin Laden or Mr Gianfranco Corleone sounds only prudent and sensible.
But like all regulations, a good idea decays into fatuity. If I am an Islamic extremist or a Mafioso, I donât get deterred by clerks. Iâm adroit, I find ways to deal with the rules. It is the innocent Traceys that the minutiae of financial regulation hits.
Last week also saw the illustrious Standard Life tripped up by a hazard none of its leaders had imagined. Once again a financial regulation, under the camouflage of good intentions, has created a monster.
The Financial Services Authority says it is determined to "police" the financial services industries and crush the baddies. Like all bureaucratic dreams, we are not told the cost or see the competence defined.
Financial regulation takes on a life of its own, like all regulation. It has the power to neutralise. It may even stunt innovation. Scotland used to have a varied community of friendly societies. They were self-help operations, mutual societies - just like Standard Life.
Friendly societies used to operate state benefits on the basis they were far cheaper and more efficient than the civil service. Although a few valiant friendlies survive, the life has been bleached out of them by the regulator.
The need for conscientious regulation seems obvious. What about the Enrons and Parmalatâs missing billions? Yet all the great scandals have occurred under tight financial regulation.
Regulation takes on a life of its own. It has the power to neutralise, even to stunt innovation.
The regulators seem blind to the real nasties while applying pettifogging rules to the innocent. Enron happened not in spite of 4,700 pages of regulations, but arguably because such regulations allowed the baddies to hide.
One of the recent disasters in personal finance has been the near collapse of Equitable Life - now rescued by HBOS. Equitable was brought down by the lawyers seeing transgressions where there had been only an assumption that inflation would stay part of the financial landscape. Now the FSA is being sued on the assumption it had a duty of diligence to spot Equitableâs headaches.
Each new raft of regulations has unintended consequences. By a subtle process it seems markets are closed off. Only the largest outfits can afford to comply with the drizzle of new rules. To work properly, all markets need the oxygen of competition.
Not so long ago any body could set up an insurance company and anyone could ply their living as a financial adviser. Of course some flawed people survived, but the jostle itself tested competence.
Now any Scottish insurance company is hemmed in by new regulations. The entire financial services industry is being slowly squeezed. The animal spirits that keep any market moving are being anaesthetised.