Sir Howard's end is only another starting point

Standard bust-up; HBOS initiative  
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"Tomorrow is not a destination, but a starting point for the development of financial regulation in the UK," Sir Howard Davies, chairman of the Financial Services Authority, told the Foreign Banks and Securities Houses Association's annual conference yesterday. Tomorrow, just in case you'd missed it, is when the FSA finally takes on the full panoply of awesome new powers of enforcement and discipline in the City and financial services industry.

Up until now, the FSA has been acting, nominally at least, through a pre-existing group of industry-specific regulators, and it has been unable to exercise its full powers in the areas of market abuse, money laundering and management responsibility. That comes to an end at midnight tonight when the already functioning FSA is, if you like, finally armed for action. The passage begun almost exactly four-and-a-half years ago when Gordon Brown, the Chancellor, first announced plans for a super-financial regulator, has reached its conclusion.

Of course it's a beginning, but it is also an end, for you don't have to go back that many years to find an almost total lack of statutory regulation across large swathes of the financial services industry. As the politicians began to clamp down, the City old guard fought tooth and nail to keep regulation to itself, and for a while it even succeeded.

Obviously it was a disaster for the consumer, culminating in the pensions mis-selling scandal and much else besides, but it was also a disaster for the City, making its securities houses almost totally unprepared for the onslaught of foreign competition that was to hit them from the mid-1980s onwards. Fortunately for us, the foreigners chose to launch their assault from within the City's walls, rather than from outside them, and far from balking at the onwards and upwards march of statutory regulation, they have actually welcomed it as a positive attraction.

The problem is that you can always have too much of a good thing and the danger of the FSA in its new all-mighty form is precisely that. Critics point to the possibility of a bureaucratic monster, of enterprise and endeavour being overwhelmed by prescriptive busybodying, box ticking and red tape. The FSA has also been given daunting powers of investigation and discipline, and the trouble with absolutist government is that it is just as likely to be oppressive as enlightened.

Even so, thus far the omens are good. The evidence is that regulatory reform is increasing London's attractiveness as a financial centre, not decreasing it, and the safeguards against abuse look to be relatively robust. Both at the wholesale and retail end of the financial services industry, there is widespread support for the general principle of the FSA and for the disciplines it is attempting to instill.

It is the market abuse rules that have attracted the fiercest criticism, and with good reason. All the same, the attempt to make untoward market practice a civil offence which can be properly dealt with through the FSA seems an enormous advance on what went before, when the authorities were forced to fall back on the criminal law. Successful prosecutions were few and far between and, as Guinness has shown, even where they were successful, they were often achieved by using highly questionable means.

Sir Howard is right. The proof of the pudding will be in the eating, but the FSA was a long-overdue reform which in time ought to help secure the City's position as Europe's leading financial centre, as well as provide the ordinary retail consumer of financial products with a good deal more comfort than he's had to date.

Standard bust-up

Sir Patrick Gillam, chairman of Standard Chartered Bank, is old enough to qualify for a free bus pass, but age doesn't seem to have dulled his appetite for a fight. Yesterday he unceremoniously ditched his much younger chief executive, the Indian-born Rana Talwar, with whom he is said to have been sparring for months, and replaced him with a Standard Chartered career insider, Mervyn Davies. Little explanation was offered, outside the rather unsatisfactory suggestion that Mr Talwar's face didn't fit and that his adversarial, centralised management style was quite out of sync with Standard's collegiate approach to banking.

Mr Talwar gets very mixed reviews in the City. Some think he's brilliant, having made some useful acquisitions and saved the bank from the emerging markets crisis of the late 1990s, others think his performance lacklustre. What is certainly true is that as a former Citigroup high flier he was very far from being one of the "chaps" that still dominate this former colonial bank.

Most of them, to be fair, are not these days the stuffed shirt British ex-pats that once ran Standard Chartered, but are drawn from all kinds of ethnic backgrounds from all over the world. Even so, culturally and temperamentally, Mr Talwar didn't fit in. Add to that the fact that Sir Patrick seems determined to hang on to the levers of power as long as he can, despite his advancing years, and yesterday's sacking was perhaps always inevitable.

However, the £3m which is Mr Talwar's likely payoff is a lot of money to dish out for a personality clash, and it seems reasonable to assume the falling out is about more than just inability to get on. In the City, the flashpoint is widely believed to have been to do with whether Standard Chartered should remain independent or put itself up for auction. Standard has an excellent franchise and it gets informal approaches all the time but, thus far, the board's view, and that of its biggest shareholder, the veteran Malaysian financier Tan Sri Khoo Teck Puat, has always been that it is not for sale, or not at least at the sort of price others might be prepared to pay.

As it happens, there's not much prospect of a takeover anyway. It's hard to see what Standard Chartered would bring to the party at Lloyds TSB, other than more bulk and a completely different risk profile – although that didn't stop Lloyds launching an ultimately fruitless bid for Standard Chartered in the mid-1980s. More plausible is Barclays, which has overlapping interests in South Africa, but for the time being its priorities lie elsewhere.

The possibility of an imminent takeover seems to owe more to the fevered imaginings of deal-starved investment bankers than anything else. In any case, with Sir Patrick now firmly back in the saddle and having no intention of getting out of it again until he reaches 70, which is still two years away, anyone who tries it on is assured of a hostile reception.

HBOS initiative

Well done HBOS for extending the current account proposition already offered by Halifax – that is an ordinary bank account that pays base rate minus 2 percentage points on any outstanding balance and charges only 8.9 per cent for an overdraft – to Bank of Scotland account holders too. The big four English clearing banks will not be rushing to follow suit. They make profits of hundreds of millions a year from their current account business, and they rely on customer lethargy to support their usury. But time is running out for them. Customer loyalty isn't worth a fig any longer in the mortgage business, and with new current account entrants such as Halifax growing fast, it will soon be the same in bank accounts too.