Davies expects the world to follow where his FSA leads

Howard Davies is aiming to make Britain's new Financial Services Authority a role model for financial regulation throughout the world. In this interview with Jeremy Warner, the FSA chairman explains his concept of `lead regulation' and talks about the lessons for banking supervisors of the crisis in the Far East.

Howard Davies leans forward in his chair and with a twinkle in his eye declares that when the still nascent Financial Services Authority moves to Canary Wharf in London's Docklands in three months' time, it will become an entirely open-plan organisation.

"No one will have a private office," he says, "and that includes me. It helps settle the argument over who has his own office and who doesn't. No one will. It should also help counter the perception of some great, unwieldy bureaucracy.

"There will be meeting rooms and quiet rooms, and of course there will be a conference and meeting centre on the first floor where all those bankers and securities firms who come to confess their sins can meet with officials in private. So it won't be too bad."

When up and running, the FSA will pull together under one roof what are at present nine distinct industry regulators with a total staff of more than 2,000. As head of this all-encompassing organisation, Mr Davies's job will be to prevent banks from going bust, stop crooks from selling shares, clamp down on dodgy savings products, and discipline miscreants.

As such, he is set to become the most powerful financial regulator in the world - more omnipresent than any counterpart even in New York or Tokyo.

Mr Davies, a former director general of the Confederation of British Industry, McKinsey's management consultant and Treasury mandarin, faces a daunting task in bringing about this organisational change while at the same time maintaining and improving on present levels of financial supervision.

Many in the City believe the plan to be flawed, that the disciplines and rigours required to regulate retail and wholesale markets are so fundamentally different from each other that they cannot be combined in one organisation.

But Mr Davies, a determined and sometimes eccentric operator, is convinced the FSA will pull it off and that others will be forced to follow Britain's lead.

Right now he's running to meet a number of tight deadlines. The most important of these is production of the FSA's budget, which is scheduled to go out to consultation in the middle of next month. Also out to consultation for the first time will be the FSA's management plan and its proposed regulatory infrastructure.

Central to this will be the idea of "lead regulation", a concept which Mr Davies sees as key to adequate financial regulation of increasingly global capital markets and organisations.

"It means that when a regulator phones from abroad to ask about a particular company, there will always be a lead point of contact, someone who is directly responsible, even though supervision of some parts of the company may be matrixed out within the FSA.

Mr Davies sees the present lack of co-ordination between regulators, at a national and international level, as a core weakness in financial supervision.

"Even in the US, there is confusion about the responsible regulator. If you have a query about Goldman Sachs, it is not clear whether you should go to the Fed or the SEC. No one has direct responsibility.

"We believe our concept of consolidated supervision to be an essential building block of future regulation and we would like to see this approach duplicated throughout the world. There is general international agreement that we should have something like this. It will be on the agenda again for the G7 summit in Birmingham next May.

"But in some areas of the world there are big problems with it. The fear is that regulation won't be properly independent of government or that commercially confidential information will leak."

Even so, Mr Davies believes there are drawbacks in present "home and host" regulatory arrangements, under which supervisors are responsible for their home banks even when operating in overseas territories.

"Nearly every complicated banking transaction that happens in Europe is likely to be done in London these days. That means there are Continental banks doing things in London which they don't do at home, yet we, the London regulator, are not responsible under present arrangements for their supervision. That's up to the host regulator.

"The key thing in Europe, then, is building links between banking supervisors so that we are all at one in the way we treat banking supervision throughout Europe."

Because London is the world's largest international financial market place, the FSA is bound to play a key role in enhancing global supervision and regulation of markets. However, Mr Davies does not believe that the coming of the single currency will drive Europe towards a single financial regulator too.

"I doubt the City, the world's biggest international financial market place, would want to be regulated by an office in Brussels. In any case I'm sceptical that the single currency will lead quickly to a single retail banking market.

"So far, most attempts at a pan European bank have come to grief. No one is trying to do that anymore and most of the consolidation we are seeing in the industry is domestic.

"There is no sign of the sort of consolidation that would argue for a single European regulator. Anyway, we've taken a 15-year lease on our Canary Wharf offices and we'll see how we go after that."

Mr Davies is adamant that the crisis in the Far East is to some extent about a failure in regulation. A feature common to the entire region has been a fragile banking system, which in turn was caused by inadequate rules of disclosure and regulation.

"Large non-performing assets were kept on the books in a way that would have been unacceptable in Europe or the US. And there were virtually no rules to govern connected lending. In many cases banks were effectively lending to themselves, to connected industrial companies or to the pet projects of leading politicians."

Mr Davies brandishes a pen with a flat-topped cap. Superglued to the top is a tiny Mexican centavo coin. "I put it there after the Mexican crisis as a warning of what can happen," he says.

"But I feel that in fairness to the Mexicans I should now be removing it. I wonder if there is a similarly sized Korean or Indonesian coin I could replace it with?"

Start your day with The Independent, sign up for daily news emails
News
ebooksAn unforgettable anthology of contemporary reportage
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Guru Careers: Pricing Analyst

£30 - 35k: Guru Careers: We are seeking a Pricing Analyst to join a leading e-...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45K YR1: SThree: At SThree, we like to be dif...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + competitive: SThree: Did you know? SThree is a mul...

Guru Careers: C# Project Team Lead

£55 - 65k (DOE): Guru Careers: A unique opportunity for a permanent C# Develop...

Day In a Page

Fifa corruption: The 161-page dossier that exposes the organisation's dark heart

The 161-page dossier that exposes Fifa's dark heart

How did a group of corrupt officials turn football’s governing body into what was, in essence, a criminal enterprise? Chris Green and David Connett reveal all
Mediterranean migrant crisis: 'If Europe thinks bombing boats will stop smuggling, it will not. We will defend ourselves,' says Tripoli PM

Exclusive interview with Tripoli PM Khalifa al-Ghweil

'If Europe thinks bombing boats will stop smuggling, it will not. We will defend ourselves'
Raymond Chandler's Los Angeles: How the author foretold the Californian water crisis

Raymond Chandler's Los Angeles

How the author foretold the Californian water crisis
Chinese artist who posted funny image of President Xi Jinping facing five years in prison as authorities crackdown on dissent in the arts

Art attack

Chinese artist who posted funny image of President Xi Jinping facing five years in prison
Marc Jacobs is putting Cher in the limelight as the face of his latest campaign

Cher is the new face of Marc Jacobs

Alexander Fury explains why designers are turning to august stars to front their lines
Parents of six-year-old who beat leukaemia plan to climb Ben Nevis for cancer charity

'I'm climbing Ben Nevis for my daughter'

Karen Attwood's young daughter Yasmin beat cancer. Now her family is about to take on a new challenge - scaling Ben Nevis to help other children
10 best wedding gift ideas

It's that time of year again... 10 best wedding gift ideas

Forget that fancy toaster, we've gone off-list to find memorable gifts that will last a lifetime
Paul Scholes column: With the Premier League over for another year, here are my end of season awards

Paul Scholes column

With the Premier League over for another year, here are my end of season awards
Heysel disaster 30th anniversary: Liverpool have seen too much tragedy to forget fateful day in Belgium

Liverpool have seen too much tragedy to forget Heysel

Thirty years ago, 39 fans waiting to watch a European Cup final died as a result of a fatal cocktail of circumstances. Ian Herbert looks at how a club dealt with this tragedy
Amir Khan vs Chris Algieri: Khan’s audition for Floyd Mayweather may turn into a no-win situation, says Frank Warren

Khan’s audition for Mayweather may turn into a no-win situation

The Bolton fighter could be damned if he dazzles and damned if he doesn’t against Algieri, the man last seen being decked six times by Pacquiao, says Frank Warren
Blundering Tony Blair quits as Middle East peace envoy – only Israel will miss him

Blundering Blair quits as Middle East peace envoy – only Israel will miss him

For Arabs – and for Britons who lost their loved ones in his shambolic war in Iraq – his appointment was an insult, says Robert Fisk
Fifa corruption arrests: All hail the Feds for riding to football's rescue

Fifa corruption arrests

All hail the Feds for riding to football's rescue, says Ian Herbert
Isis in Syria: The Kurdish enclave still resisting the tyranny of President Assad and militant fighters

The Kurdish enclave still resisting the tyranny of Assad and Isis

In Syrian Kurdish cantons along the Turkish border, the progressive aims of the 2011 uprising are being enacted despite the war. Patrick Cockburn returns to Amuda
How I survived Cambodia's Killing Fields: Acclaimed surgeon SreyRam Kuy celebrates her mother's determination to escape the US

How I survived Cambodia's Killing Fields

Acclaimed surgeon SreyRam Kuy celebrates her mother's determination to escape to the US
Stephen Mangan interview: From posh buffoon to pregnant dad, the actor has quite a range

How Stephen Mangan got his range

Posh buffoon, hapless writer, pregnant dad - Mangan is certainly a versatile actor