A bad year for watchdogs

ANALYSIS By Nils Blythe Business correspondent, BBC News

BAA won its appeal this week against the regulator's decision

Regulators and watchdogs have taken a terrible beating this year. And the decision by the Office of Fair Trading (OFT) to drop its investigation into bank charges is another painful blow.

On Monday, BAA successfully appealed against the Competition Commission's order to sell off some of its airports. The final outcome is not yet decided. But legal experts are warning that a two-year inquiry may have to be scrapped because of the possibility that one of the people conducting the inquiry had a potential conflict of interest.

These are the latest in a series of reversals for the competition authorities - the OFT and the Competition Commission - which have wide-ranging powers.

Some of the bodies which regulate specific industries - who also have a duty to promote competition and protect consumers - have had a rotten year as well.

The Financial Services Authority (FSA) has been lambasted for its failure to regulate the banks properly. It failed to prevent the creation of a credit bubble, whose bursting has pushed the whole economy into recession.

Raise their game

But it would be wrong to jump to the conclusion that regulators and watchdogs are a waste of space.

The OFT had won its case against what it saw as unfair bank charges in the High Court and the Appeal Court. It was clearly a case worth pursuing, even if it failed in the Supreme Court.

The FSA's regulation of banks has been criticised

The Competition Commission got it badly wrong in failing to spot a potential conflict of interest for one of its panel members in the BAA inquiry. But the commission still enjoys a high reputation for intellectual rigour in complex investigations.

And the failure of the FSA was in providing too little regulation for the banks, rather than too much.

But after a bad 2009, the UK's many regulators and watchdogs will certainly have to raise their collective game in 2010.

The government has promised a "bonfire of the quangos" as part of its plan to reduce public spending.

The Conservatives have said that they will pass some of the powers of the FSA to the Bank of England. And David Cameron has raised questions about the future role of Ofcom, the media regulator.

Emboldened businesses

The task of a regulator is never an easy one. They are blamed when things go wrong. But when things are not going wrong, the need for an expensive system of regulation is questioned.

Watchdogs are also routinely savaged by the businesses they regulate. Ofcom has come in for some strident criticism from BSkyB this year for being too interventionist. But attacks from regulated companies don't prove that a regulator is doing a bad job (or indeed a good job).

Regulators know that their decisions can be subject to legal challenge. After the recent successes of BAA and the banks, corporate Britain will feel further emboldened to question regulators' decisions.

The days when companies feared to raise a regulatory eyebrow have long gone. Regulators in 2010 will have to fight to defend their budgets. And winning their court cases would help their cause.

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