UK Financial Services Authority

[Chris Burford]

With acknowledgements to Mark's list and to Michael Keaney, this extract from the FT shows the extent to which the regulation of finance capital may not be totally unwelcome to finance capital itself.

Chris Burford




The City's reasons to be cheerful: parts one to six:

The Financial Services Authority is being launched amid unremittingly
negative publicity but its potential advantages should outweigh its drawbacks

Financial Times, Dec 1, 2001
By MARTIN DICKSON

On the stroke of midnight last night a monster was born in the City of London: a swaggering, all-powerful kangaroo court set on claiming bankers' scalps quickly. Fear stalks the Square Mile.

This is the sort of alarmist, overblown imagery surrounding this morning's assumption by the Financial Services Authority of its full powers as Britain's unified financial regulator. The tone of much commentary has been unremittingly negative.

It is not hard to see why. Nobody loves a policeman. The City cannot be expected to warm to a regulator shaking up the cosy framework that has governed its life for past 15 years. It is easy to snipe, particularly anonymously. For their part, the consumers who stand to benefit most from its operations are rarely satisfied. If all goes well they do not notice. If matters turn sour, as they inevitably will, our blame culture demands a scapegoat and the regulator is first in line.

The City is certainly right to view the FSA with a degree of apprehension. It is a statutory body that replaces 10 largely self-regulatory organisations and enjoys wide new powers, including the ability to levy unlimited fines, even on those it does not regulate. If it acts in an overweening or excessively bureaucratic manner it could harm the flexible, innovatory culture that makes London the undisputed financial capital of Europe. But all these legitimate concerns are in danger of obscuring the bigger picture: provided its leaders do not start foaming at the mouth, the advantages of the FSA substantially outweigh its drawbacks. So here are six reasons to be cheerful this morning:

First, if it does its job right, consumers should enjoy better protection, although the principle of caveat emptor obviously still applies. The succession of scandals that plagued the City over the past decade shows some of the FSA's predecessors were not tough enough.

Second, it has teeth to pursue wrongdoers, ranging from money launderers (particularly pertinent since September 11) to the insider dealers who have rarely been convicted in the criminal courts. The new civil penalty of market abuse - defined vaguely, which is cause for concern - requires a lower burden of proof.

Third, the FSA has forced many City firms to do what they should have done long before now: tighten up their control systems and get senior managers to accept clear responsibility for staff actions. Barings might not have collapsed if it had been more professional about this.

Fourth, it should bring better regulation to industries that until now have had inadequate controls. Sir Howard Davies, the FSA chairman, made clear this week that insurance is top of his agenda. Quite right too. Pensions mis-selling, the Equitable scandal and problems in the general insurance market underline the need for big changes.

Fifth, while the idea of a single regulator was initially controversial in the City, many now regard it as sensible. It should be more coherent and allow skills and resources to be better allocated. The biggest beneficiaries should be the largest, diversified groups, whose regulation is being co-ordinated by a single supervisor. Another benefit should be FSA emphasis on risk-based supervision, where firms that pose less risk have less intensive scrutiny - though there is mixed evidence on the extent to which this is reducing bureaucracy.

Sixth, the FSA is good for Britain's international standing. The UK has led the world's bigger markets in the creation of a unified authority (Sweden also has one) and international bankers regard it as the most sophisticated, responsive regulator in Europe - some even say globally. Some have located operations in London precisely because of this. "The way the FSA is constructed is smart," a top continental securities industry executive told me this week. "The closer my country can move to this the better. Your politicians understand the economic contribution of the City."

All this said, the FSA and the legislation that created it are far from perfect. Its handling of the Equitable affair has been flawed; some in the City complain about the quality of its more junior staff (though seem happy to poach them); and while its powers of enforcement have been hedged around with checks and balances, they remain broad and substantial. Early misuse of them would set a potentially disastrous tone for its relations with the City.

Balancing firmness and fairness will never be easy. But Sir Howard knows the FSA model is on trial and says he is well aware of the need to pursue serious breaches of market conduct rather than trivial ones.

Action will speak louder than words. But it seems unlikely he and his team were transformed on the stroke of midnight into slavering, scalp-hunting horrors of City imagination.

Full article at:
http://globalarchive.ft.com/globalarchive/articles.html?print=true&id=011201000820