city boys
 
         
   

Junking the FSA

Since its much heralded inception six years ago, complaints about the Financial Services Authority (FSA) have been marching straight out of the Square Mile, down to Whitehall and vibrantly protesting in front of the Treasury. Despite years of presuming the tireless lobbying of the complainants was falling on deaf ears, the government last week announced the first ever formal review of the FSA was to commence.

Of course the government denies that the performance appraisal is in any way a result of consumer and industry opposition to FSA tactics, citing the review as planned for the end of the first five years. FSA relations with the government have been strained since Tony Blair last year accused them of being "hugely inhibiting of efficient business". The fact that the Treasury has now asked the National Audit Office to determine whether the FSA is doing a good job would suggest that there has since been little sign of improvement.

‘There’s little glory in being the best of a bad bunch though.’

The FSA does have its plaudits. In comparison to US regulators, they are a breeze, and when viewed against their US peers they have been enormously successful at not driving international business out of London. There’s little glory in being the best of a bad bunch though. When we are reduced to pointing to the US before recognising our good fortune, we must question whether this even falls within the definition of fortune. I would be tremendously surprised if the voluminous reams of paper which orchestrate the FSA have any mention of the US as a measurement criterion for success.

Such a superficial accomplishment pales into insignificance against the tangible, smoking ruins of past failures. The briefest of studies into the FSA’s handling of split cap investments, of Legal & General, of Equitable Life, of Shell will all lead to the same conclusion of incompetence. They were accused by consumer group Which? of being "asleep on the job" over its handling of the endowment mis-selling scandal. Any claim of being a plausible market enforcer has lost all credibility since last month’s decision of an appeals tribunal to overturn the FSA’s £750,000 fine and disciplinary action against Paul 'The Plumber' Davidson. The FSA has even stumbled on the smallest of pebbles: creating a user friendly, consumer focused website, a task still with the internet scaffolding of the “under construction” sign.

‘The regulator is now suffocating the City on the thick air of European directives and red tape.’

The FSA’s impotency when it comes to enforcing tough discipline is compounded by fundamental structural issues. The separation of the regulator into the two arms of wholesale and retail has resulted in a real shift in focus. Whilst the wholesale arm is charged with dealing with the 100 or so major players in London, the FSA’s time is now dominated by its long retail arm that polices 18,000 mortgage and general insurance brokers.

These are entirely different functions, and the recent drive on the retail side has left the FSA weakened and vastly under-resourced. Rather than proudly protecting the city, and ensuring a future free from scandal and systemic collapse, the regulator is now suffocating the City on the thick air of European directives and red tape. Such micro management has been interpreted as nothing short of insulting by many in the city who accuse the FSA of a complete lack of acknowledgement of their professional integrity or competence.

Correct supervision is undoubtedly of huge importance to London's leadership as a financial centre. At a time when two major UK-based markets, the London Stock Exchange and Liffe, are cuddling closer and closer together with greedy American counterparts, we really need the FSA to be on the ball. It would be tragic to see our position of influence in any way compromised because the FSA is too busy double checking Joe Bloggs’ insurance cover note.

Regulators should by now have realised that, the more rules they manufacture or enforce, the more likely they are to be criticised. Take on too much work and they will choke, either condemned for stifling business, or for having failed to intervene. Let’s hope that Gordon Brown finds echoes of this message in his motivations for having the FSA audited, and the National Audit Office’s results pave the way for a more streamlined and efficient watchdog. At present our one-size-fits-all, multipurpose regulator has navigated us into a period which has seen our financial services industry’s reputation at its lowest ebb in modern memory. Something has to change.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   
Junk the FSA?