King's College London

Concerns over the “revolving door” in finance centre around the perception that those who follow similar paths between the private and public sector are susceptible to groupthink, ingroup bias, and pervasive loyalty to former colleagues, ultimately leading to weak and ineffective regulation.

However, a new study by a group of academics has found that those making multiple moves between the two sectors in the financial world are less likely to be “doing finance” and more likely to be involved in governmental, legal, and public affairs, are advisors, or work in a legal capacity.

This nuance, the academics argue, means the type of people making multiple moves are likely to have accrued a breadth of intra-industry experience that would be useful when they eventually move into posts at top financial regulation agencies.

The findings were revealed in a new paper, In and Out of Revolving Doors in European Union Financial Regulatory Authorities, published in the journal Regulation & Governance. The paper was authored by Dr Adam Chalmers, Dr Robyn Klingler-Vidra and Alfio Puglisi, from King’s College London, with King’s alumni Lisa Remke, from the United Nations Conference on Trade and Development.

The researchers said: “Those moving in and out of revolving doors are not high-flying traders or investment managers. Instead, they are individuals who have accumulated experience about the regulatory and policy side of finance.”

“The picture we paint of revolving doors stands in stark contrast to both headline grabbing stories of top legislators moving into cushy private sector or lobbying jobs, such as that of former European Commission head, José Manuel Barroso.

“It is also distinct from the assumption that those moving through the revolving door bring with them highly technical know-how about the core business operations of an industry.”

The study looked at the career progression of 192 high-ranking regulators situated in the European Union's three chief financial regulatory agencies – the European Banking Authority, European Securities Markets Authority, and European Insurance and Occupational Pensions Authority – as of May 2018.

The agencies wield considerable regulatory power across the EU's 27 member states, providing oversight in the form of banking stress tests and regulating credit rating agencies as well as developing regulatory standards, and implementing guidelines and recommendations.

According to the study, some 85 per cent of top regulators had moved at least once between public and private sector roles, with about 40 per cent having moved at least twice.

The researchers added: “Our analysis highlights a differentiated understanding of the reality of revolving doors. In particular, the fact that making multiple movements is rather common, and that the day-to-day work of these multiple movers is relegated to the policy side of finance.

“This is not to downplay revolving doors. What it means, though, is that the way researchers have been understanding the impact of revolvers needs refining.”

You can read the study in full here.