Comment: New SFA rules will hit firms where it hurts

'Regulators must be able to do more than just tick boxes. They must be capable of assessing the quality of management and then making a mature decision about the level of compliance it must adhere to'
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The grey panthers have been joined by the loan sharks. The Bank of England's method of beefing up the policing of the City is to bring in a handful of retired senior bankers to show the young 'uns in its supervision department the ropes. The tactic preferred by the Securities and Futures Authority is to make high-risk firms pay through the nose for the privilege of staying in business.

Cynics might wonder whether the SFA's decision to reduce compliance costs for well-run organisations while ratcheting them up for poorly-managed ones has as much to do with its own costs as anything. The SFA has some 270 staff to police 1300 members. The Bank's supervisory department will have twice that number to look after about 500 banks.

But there is no disputing that, post Barings, the SFA's example is the way regulation is moving, at least in financial services. Under its new chairman Nick Durlacher, the SFA is already consulting on a new set of rules that would allow it to punish deficient managements. The logical extension of that system is to make it more expensive for them if they want to stay in business.

Increasing capital requirements so that firms judged to have a higher risk profile need to have more funds available to cover counterparty risks and margin calls is a quick way to hit them where it hurts most.

Likewise the move to reduce reporting requirements for firms that follow the SFA's standard derivatives model is a good incentive for those interested in less time-consuming, bureaucratic and expensive form-filling.

The Investment Management Regulatory Organisation, which polices financial intermediaries, is going down a similar path by relaxing the regulatory regime for those which can demonstrate they are operating in accordance with best practice.

It is a theme running right through financial regulation and one which is gaining more advocates every day. Forget about minute application of every rule in the book on firms with strong management and focus resources on those where the potential problems lie.

The rub is that it requires regulators who are able to do more than just tick boxes. They must be capable of assessing the quality of a management and then making a mature decision about what level of compliance it must adhere to. That, in turn, puts them more squarely in the firing line should a management deemed to be low risk, end up in a high-profile mess.

As the Bank found when it invited Arthur Andersen through its portals, quality of supervisory staff can be mixed. The slimline SFA believes it has the quality of staff to carry through its new regulatory approach. The irony is that it may not have the time to prove the superiority of its approach. If Labour gets in it would probably wind up the SFA and other bodies like it and hand their regulatory functions over to a beefed up supervisory body run by the Bank.

Pearson proclaims diverting news

It is a tried and tested formula to distract attention from poor figures with an avalnache of other news. Pearson attempted just that yesterday with three big-league announcements: the appointment of a Hollywood hot-shot as head of Penguin; the purchase of nearly all of the shares in Spanish media concern Les Recoletos it did not already own; and the pounds 305m sale of Westminister Press to Newsquest.

Let's come back to the big announcements later. The bad news was in the interim figures. No amount of advance warning could divert attention from the awfulness of Pearson's plunge into the US electronic publishing market, through its ill-advised Mindscape acquisition. The damage has been done, and the share price fully reflects it. There were a few other disappointments in the figures - not least higher than expected restructuring charges in the period and the confirmation of much higher costs arising from the retuning of VCRs in advance of the launch of Channel 5

The big news items were - as intended - reassuring. Pearson did manage to get the Westminster Press sale off in quick order, even if the sale price is highly dilutive. The Recoletos acquisition makes eminent sense. The 95 per cent share Pearson now holds cost it about pounds 160m to amass, and is probably worth pounds 300m. And there is no doubt that Michael Lynton, former Hollywood Pictures head, is a catch for Penguin.

The question is whether the company makes sense in its current configuration and whether present management can cope.

Frank Barlowand Lord Blakenham have overseen one of the most impressive restructurings of any British company. From oil services, china, books, newspapers and financial services, it has refocused along clear lines - broadly, multimedia. The problem is that, having started, the management has to complete the process. Shareholders see hidden value in the Pearson Television holdings, wonder why Lazard's is still in the fold and ponder the advantages of spinning off Madame Tussaud. Until Pearson completes the restructuring - or until someone else steps in to do it from them - the City's perception of the management, and probably the share price, will remain volatile.

Oftel turns into villain over the 'Bolton factor'

If you were being beastly to Bolton you could probably think of 10 good reasons for not moving there. Here's another one. It's running out of telephone numbers. Phoneday last year might have given us another 8 billion of them but Bolton's supply will still be exhausted by 2012 unless something is done.

That something might be to be replace its existing 01204 code, which was only introduced in spring last year with a code starting 020 and then followed by a seven digit number. The situation is even worse in London which will run out of 0171 and 0181 numbers by the turn of the millenium. The answer will be to switch to 020 and 022 (021 used to be Birmingham but that's another story) followed by an eight digit number instead of seven. In Reading, meanwhile you can already be reached on 01734 or 0118 followed by six digits or is it seven. Confused? You will be.

In the space of a weekend Don Cruickshank, the director-general of Oftel, has gone from hero to villain with his proposals to find more numbers to keep up with our insatiable appetite for telephones. Why didn't he suggest changing to 020 something something a year ago instead of the halfway house of inserting a 1 after the 0? Well, he did actually propose that new subscribers be 020ers but consumer groups went ape at the thought of having to dial a four digit code just to ring next door.

Presentationally, Mr Cruickshank could have made a better fist of it. But the real villains of the piece are the big businesses who have sacked the switchboard operator and introduced hundreds of direct dial phones. Their representatives were keeping a strangely low profile yesterday.

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