bank regulation: banking on change, banking on integrity

By in banking, management, products, strategy on 18 April 2011

When everyone’s talking about bank regulation, you know something’s wrong. And when everyone’s condemning it, you know we need to act.
FSA is no authority for bank regulation - its a waste of resources...

Anger centres around the Financial Services Authority. A Cabinet Office quango.
But two spectacular failures by the FSA have destroyed public confidence…

The FSA – not serving its notice

I was lucky enough to talk briefly with George Osborne before the last election. Our Chancellor-to-be said then that dismantling the FSA was top of his agenda.

But a government quango with such a high public profile is difficult to unseat. Beneath a new name and the flashy new logo, the same inefficiencies remain. The FSA has failed us. Will we see the changes we need?

A record of failure

In 1985, the then Chancellor brought in The Securities and Investments Board. The SIB’s catalogue of screw-ups, culminating with the Barings failure turned whispers of discontent to shouts for it to go. The SIB became the FSA in 1997.

In 2004, the FSA was expanded to take on mortgage and insurance regulation. Twelve months later, mortgages mismanagement brought the financial crash.

A new regulator for a new financial world?

Regulators past and present all suffer the triple whammy of public sector incompetence, institionalised corruption and old-boy fraternalism.

The new body must be protected from the interference and unwelcome influence by powerful banking figures in the City, yet accessible to the public it will serve. Our new body must be highly responsive and responsible to us.

Who would be best placed to serve us?

The new body needs to understand both products and their impact on customers. Given that, from where could it draw its expertise?

Twelve men and true?

I would propose the new body draws members from academia, financial law, elected government and the media.

Given time though, even representatives of the highest integrity can be bought. Perhaps each member should be externally elected by their own peer group, serving for say, a twelve month period?

Who would finance the new body?

The public should not have to pay for its own protection. It has a right to expect it. Provision costs should come as a fee from the financial sector it regulates.

The fee should be tied to profit to ensure new players pay least and those who dominate the market with with most to gain paying the greatest.

To prevent manipulation by the richest providers, fees would go to the Treasury and allocated to the new body. That would allow Audit Commission monitoring.

A new financial world order

Only with a fair, efficient and honest regulator will we see a fair, efficient and honest financial sector. The UK should lead the world and set an example to all. Will our Government listen to its people for once?

Our future prosperity depends on it.