James Moore: FSA must not resort to macho regulation

Outlook One of the issues with the Alternative Investment Fund Managers directive is that it tramples over territory which should be owned by national financial regulators. EU member states have primary responsibility for policing their own financial sectors, within reason, and while the FSA has been anything but a paragon of virtue in recent years, it's hardly alone in that, and it's by no means clear that Europe would do a better job.

Yesterday the deliciously named Jon Pain provided the latest missive on how the FSA has been shaking up how it does its job and transforming the disastrous "light touch" regulation (read, not doing very much other than ticking a few boxes) that was the norm in the run-up to to the financial crisis into the new "intrusive" (read mean, and nasty) regime of today.

Mr Pain gave a number of examples of how this has been working in practice, the most interesting of which was the way the watchdog has, for a number of mergers or acquisitions over the last 18 months, "been at the heart of the analysis and judgements being made by senior management". Now doesn't that cast an interesting light on Prudential's decision to brief the media and investment community that it planned to price its rights issue a couple of weeks ago even though (as subsequently became crystal clear) it had failed to secure the watchdog's approval.

If the insurer indulges in this sort of behaviour too regularly it may well find itself falling foul of another of the FSA's innovations: that of "encouraging" (read demanding) a change in management or board members at regulated companies.

But the FSA should also have a care, now its future has been secured by dint of the Conservatives' failure to secure an overall majority in Parliament. Much water has passed under the bridge since Legal & General's partial victory in its appeal against a fine for endowment mis-selling. But the case did cast a very unsavoury light on the regulator's operations and internal processes.

The FSA needs to be careful not to resort to the sort of macho regulation that was on display during that very public appeal hearing.

One way of achieving this, of course, is hiring better people to work for Mr Pain. It might be unpalatable to suggest this in these times of pay restraint, but that means offering better salaries to those people.