FSA chief McCarthy apologises to City for watchdog's 'failures'

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The Independent Online

The chairman of the Financial Services Authority offered an olive branch to the City yesterday after long-standing concerns that its approach to regulation is heavy-handed. Callum McCarthy said he accepted the regulator had been dogged by "failures" but claimed it had now made reforms.

"The review of the FSA's enforcement procedures we completed last year shows that when we recognise failures in our processes we will seek to remedy them," Mr McCarthy said. "I regret that it took us so long to recognise the legitimacy of concerns expressed to us that these processes were not fair to those subject to them."

The apology follows a high-profile clash with Legal & General, which took the regulator to the Financial Services & Markets Tribunal after it was fined £1.1m for mis-selling endowment-linked mortgages. The tribunal subsequently ruled the fine had been twice as high as was justified.

An adviser to Mr McCarthy said yesterday that the apology, published in the regulator's annual report, was designed to mollify the FSA's critics. "The fact it was necessary for someone to take us to a tribunal was a valuable lesson," he said. "It also took us a little time to respond to that ruling."

Mr McCarthy said that, in future, the regulator's enforcement team would focus more narrowly on the most serious cases, while the FSA tried to settle more disputes behind the scenes.

Figures published yesterday by the FSA suggest this shift of attitude has already begun. Last year, the regulator fined 17 companies a total of £17.43m. This was significantly less than the £22.5m paid by 31 companies in the previous year, but the average fine rose from £717,000 to £1.02m.

The regulator's annual report shows the FSA spent £272.2m last year, a 13 per cent increase on 2004-05, in part reflecting the fact it began overseeing the mortgage industry last year.

The FSA also faced unexpected additional employment costs after rasing staff bonuses from an average of 10 to 12 per cent of salary. Its employment costs included a £68,000 performance-related bonus paid to the chief executive John Tiner, who received the money despite taking a three-month leave of absence from the regulator due to a serious illness from which he has now recovered. Mr Tiner's total pay and pensions package last year was worth almost £573,000, up 6 per cent on the previous year.

Mr McCarthy received total remuneration of £436,142 last year, 14 per cent up on the previous year.