What it means
In finance, regulators set the rules for banks, insurers and investment firms, and industry professionals often have the technical skills regulators need. The result is a steady flow of people between the two worlds.
Someone might spend ten years at a securities regulator, move to a large bank to run compliance, and later return to a public role. Supporters say the movement brings expertise and practical experience into government, and gives industry a better understanding of regulation.
Critics say it can create conflicts of interest. A regulator who hopes to join a firm later might go easy on it, and a former executive might favour their old employer when they return to government.
This concern is linked to the idea of regulatory capture, which describes a regulator that ends up serving the interests of the industry it is supposed to police. The revolving door is one of the routes through which capture is thought to happen, although it is rarely the only one.
Evidence of actual harm is debated. Governments respond with rules rather than bans.
Common measures include cooling-off periods, which delay when a former official can work for a firm they regulated, restrictions on lobbying, and disclosure of job offers. The details vary widely between countries.
The phrase is also used more loosely in business to describe a company with very high staff turnover, where people leave nearly as fast as they are hired. In finance, though, it most often refers to the regulatory movement between public and private roles.
Beyond individual cases, the issue also touches how regulators hire and keep talent. Public salaries are often lower than private ones, so officials may see government as a stepping stone, which increases the risk of conflicts.
Some regulators respond by offering better pay, longer contracts and clear career paths so that staff are less tempted to move for money.
In practice
Real-world examples.
Example
A senior official at a securities regulator leaves to become chief compliance officer at an investment bank. Under the cooling-off rules, she cannot lobby her former colleagues for a set period, which the bank's lawyers explain to her in detail, so she works on internal policy instead. Her new employer records the restriction in its compliance file.
Example
A former bank executive is appointed to head a banking supervision agency. He steps back from decisions involving his old employer for a period and he discloses his past shareholdings. The agency publishes his recusal list so that the public can see which matters he stays out of.
Example
A fast-growing recruitment firm has such high turnover that managers describe the sales team as a revolving door. Finance notes that the cost of replacing staff is eating into profit margins. Management starts an exit-interview programme to find out why people leave.
Case study
Seen in the real world.
Meridian Financial Authority is a fictional regulator used in an illustrative scenario. Over five years, three of its senior supervisors leave to join large lenders, and two former lending executives are appointed to its board.
A journalist asks whether the authority is too close to the industry. The authority publishes its cooling-off rules, which require a 12-month wait before a former supervisor can contact the authority on behalf of a firm, and an independent review finds no breach. The review nonetheless recommends stricter disclosure of job offers, which the authority adopts.
The board of Meridian also looked at the other side of the question. Losing experienced supervisors to industry was costly, because it took years to train replacements and left gaps in knowledge. It therefore introduced retention bonuses and a rotation programme with other agencies, aiming to keep expertise in the public sector without banning anyone from moving on.
Watch out
Common mistakes.
- Assuming every move between regulator and industry is improper. Movement can bring valuable expertise when it is managed well.
- Treating the revolving door as the same as regulatory capture. It is one possible route to capture, not the whole of it.
- Believing rules ban the practice. Most systems regulate it through cooling-off periods and disclosure rather than outright bans.
Questions
People also ask.
Why is the revolving door controversial?
Because people on one side may be influenced by the prospect of a job on the other.
What is a cooling-off period?
It is a delay before a former official can work for, or lobby on behalf of, a firm they previously regulated. The length varies by country and by the seniority of the role.
Does the term only apply to government?
No, it is sometimes used to describe any organisation with very high staff turnover. Context usually makes clear whether the speaker means regulators or staffing.
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