Backing the Winners: Financial Policymaking and the Role of Professional Services Firms

This paper contributes to the growing literature on the political power of finance in European society. It does so through an investigation of the role played by professional services firms in the regulatory policymaking process, a largely neglected aspect of academic study into contemporary financialisation. In the aftermath of the 2008 financial crash European policymakers embarked on an ambitious path of financial sector regulatory reform. Nevertheless, despite promises of a complete overhaul, reforms have turned out to piecemeal and severely restricted as a myriad of policy proposals have been watered-down, abandoned and/or postponed. While explanations for these failures vary, a recent wealth of literature has begun to isolate financial sector influence over the policymaking process as a key factor in weak regulatory outcomes. Logically, the central focus of this literature has been on the one hand, the direct lobbying efforts of financial industry groups, and on the other hand, the structural power of financial markets which have a constraining effect on the boundaries of policymaker choices. However a recent study by Pagliari and Young (2014) argues convincingly that activity by private groups outside financial the industry can in some instances ‘leverage’ financial sector power, undermining the common assumption that ‘actor plurality’ in regulatory policymaking is low and/or inconsequential.

Building upon these ideas of ‘leveraged interests’ and ‘actor plurality’ I examine the role of tax-accountancy-legal consultancy firms in affecting financial policymaking outcomes, focusing in particular on the ‘big four’ professional service providers: PwC, Ernst and Young, Deloitte and KPMG. Through the use of process tracing analysis, I investigate the involvement of these firms in the cases of the Alternative Investment Fund Managers Directive (AIFMD) and the Financial Transaction Tax (FTT) - two regulatory initiatives pursued at the EU supranational level. Ostensibly situated in a classic conflict of interest position - giving advice to both financial institutions and public officials - I provide evidence that professional service firms are in fact key allies of the financial industry. Despite the pretence to neutrality, the big four are functionally interconnected with the industry through symbiotic market relationships and informal business network associations. Crucially, professional service firms offer a wide range of political support to financial institutions including advice on effective lobbying strategies and assistance in the formulation of a coherent and unified oppositional message. In addition, the ‘big four’ habitually adopt financial actor perspectives on policy matters and regularly emphasise the potentially undesirable effects of regulation in their advice to governments and the broader public.

The study advances understanding of the unequal power relations which permeate financialised societies and which have major implications for the democratic functioning of EU policymaking.

References:

Pagliari, S. and Young, K. L. (2014). Leveraged interests: Financial industry power and the role of private sector coalitions. Review of International Political Economy, 21(3), 575-610.