Outlook: The FSA

IT'S ODD that an organisation whose creation when announced a little more than a year ago was generally welcomed as a bold and necessary reform is now the object of such a wall of hostile comment and rhetoric. That organisation is, of course, the Financial Services Authority.

When Gordon Brown revealed that he was splitting banking supervision from the Bank of England and consolidating it with other forms of financial regulation into a single City regulator, there were plenty of warnings about the potential for an overbearing and oppressive bureaucracy, and of the dangers of combining retail with wholesale regulation of financial services, but on the whole the proposal was well received.

Commentators concentrated more on the positive - the advantages of a one stop shop system of regulation which mirrored the blurring of edges between different parts of the financial services industry - than the negative.

So what's happened to change the position? The truth is that the underlying position may not have changed very much, that broadly City practitioners are still reasonably positive, but certainly since the Financial Services Bill was published in the summer, the negative has had the bigger share of column inches.

Concern lies in four areas. First, the new authority's proposed disciplinary powers and procedures are cricitised as potentially oppressive and unjust, that the FSA by acting as investigator, prosecutor, judge and jury could infringe basic human rights and laws of natural justice.

The second area of concern is the FSA's perceived lack of accountability, either to Government and parliament, which are responsible for its creation, or to the City, which is funding the whole exercise. Third is a resurfacing of worry about whether combining wholesale and retail regulation is an appropriate structure, given how different the needs of investors are in these two markets, and the consequent safeguards required. And finally there is the general concern about excessive cost and red tape, and the effect this might have on the competitiveness of the City.

All these concerns need to be addressed in some shape or form, but whether they justify root and branch reform of the Bill is another matter. In each case there is another side to the coin. Take the proposed disciplinary powers. In point of fact they are no different from the powers of existing financial regulators, but bundled together in one overmighty regulator they admittedly seem a lot more daunting. On the other hand, is it not just a little curious that so much attention is being focused on the interests of regulated firms and individuals when the whole point of financial regulation is to defend the interests of investors and depositors. These things are obviously a question of balance, but certainly the FSA needs extensive powers of redress on behalf of these people.

As it is the FSA has already committed itself to a clear separation of those investigating alleged breaches and those responsible for disciplinary proceedings, but it may be that the Bill will need to be reformed to meet the requirements of the European Convention on Human Rights.

Perhaps more serious are the allegations of lack of accountability and excessive red tape. The FSA does have statutory objectives to pursue and there are a series of general duties, such as to consult with practitioners on costs, which must be observed; it is required to report to parliament and the board dominated by non executives and the executive will be further constrained by a practitioners forum, which already boasts some top drawer City names. To go further would mean giving ministers and or practitioners direct powers of intervention, which in turn would run counter to the idea of independent regulation.

On red tape, there is scant evidence of this so far, or certainly there seems no additional burden other than a great outpouring of consultation documents to respond to. Since one of the FSA's proposed statutory obligations is to take account of the competitiveness of financial markets, there should actually be an inbuilt bias against it. And the City would hardly thank the FSA for failure to consult.

Nonetheless, there is obviously a danger that the FSA's very considerable powers could be abused, even if there is not much reason for thinking they will be. One possible solution is to be more prescriptive in the legislation, to lay out in considerable detail what the FSA can and cannot do. On the other hand, this would make the FSA rigid, inflexible and arguably incapable of evolution or of rapid response to changed circumstance.

In any case, it is not at all apparent the FSA does need to be reigned in. Many consumer groups think the heavy emphasis in the legislation on caveat emptor inappropriate, that it represents a rolling back of regulation which is not in the interests of ordinary savers.

In the end, the best safeguard against abuse is the City itself. It is plainly not in the FSA's interests to kill off the goose that lays the golden egg, quite literally in the FSA's case because the City pays its costs. By the same token, as Howard Davies, chairman of the FSA has remarked, it is very much in the interests of financial institutions to have a system of regulation whose costs have to be justified principally to those who pay them.

Suggested Topics
News
people'It can last and it's terrifying'
News
people Emma Watson addresses celebrity nude photo leak
Arts and Entertainment
tv
News
Katie Hopkins appearing on 'This Morning' after she purposefully put on 4 stone.
peopleKatie Hopkins breaks down in tears over weight gain challenge
PROMOTED VIDEO
Life and Style
fashionModel of the moment shoots for first time with catwalk veteran
Sport
Alexis Sanchez, Radamel Falcao, Diego Costa and Mario Balotelli
football
Sport
Danny Welbeck's Manchester United future is in doubt
footballGunners confirm signing from Manchester United
News
i100
Arts and Entertainment
Olivia Colman topped the list of the 30 most influential females in broadcasting
tv
Life and Style
techIf those brochure kitchens look a little too perfect to be true, well, that’s probably because they are
News
ebooksAn unforgettable anthology of contemporary reportage
Life and Style
tech
News
Kelly Brook
peopleA spokesperson said the support group was 'extremely disappointed'
Sport
Andy Murray celebrates a shot while playing Jo-Wilfried Tsonga
TennisWin sets up blockbuster US Open quarter-final against Djokovic
Arts and Entertainment
Hare’s a riddle: Kit Williams with the treasure linked to Masquerade
booksRiddling trilogy could net you $3m
Arts and Entertainment
Alex Kapranos of Franz Ferdinand performs live
music Pro-independence show to take place four days before vote
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

Derivatives Risk Commodities Business Analyst /Market Risk

£600 - £800 per day: Harrington Starr: Derivatives Risk Commodities Business A...

Power & Gas Business Analyst / Subject Matter Expert - Contract

£600 - £800 per day: Harrington Starr: Power & Gas Business Analyst/Subject Ma...

Infrastructure Lead, (Trading, VCE, Converged, Hyper V)

£600 - £900 per day: Harrington Starr: Infrastructure Lead, (Trading infrastru...

Planning Manager (Training, Learning and Development) - London

£35000 - £38000 per annum + benefits: Ashdown Group: A highly successful, glob...

Day In a Page

'I’ll tell you what I would not serve - lamb and potatoes': US ambassador hits out at stodgy British food served at diplomatic dinners

'I’ll tell you what I would not serve - lamb and potatoes'

US ambassador hits out at stodgy British food
Radio Times female powerlist: A 'revolution' in TV gender roles

A 'revolution' in TV gender roles

Inside the Radio Times female powerlist
Endgame: James Frey's literary treasure hunt

James Frey's literary treasure hunt

Riddling trilogy could net you $3m
Fitbit: Because the tingle feels so good

Fitbit: Because the tingle feels so good

What David Sedaris learnt about the world from his fitness tracker
Saudis risk new Muslim division with proposal to move Mohamed’s tomb

Saudis risk new Muslim division with proposal to move Mohamed’s tomb

Second-holiest site in Islam attracts millions of pilgrims each year
Alexander Fury: The designer names to look for at fashion week this season

The big names to look for this fashion week

This week, designers begin to show their spring 2015 collections in New York
Will Self: 'I like Orwell's writing as much as the next talented mediocrity'

'I like Orwell's writing as much as the next talented mediocrity'

Will Self takes aim at Orwell's rules for writing plain English
Meet Afghanistan's middle-class paint-ballers

Meet Afghanistan's middle-class paint-ballers

Toy guns proving a popular diversion in a country flooded with the real thing
Al Pacino wows Venice

Al Pacino wows Venice

Ham among the brilliance as actor premieres two films at festival
Neil Lawson Baker interview: ‘I’ve gained so much from art. It’s only right to give something back’.

Neil Lawson Baker interview

‘I’ve gained so much from art. It’s only right to give something back’.
The other Mugabe who is lining up for the Zimbabwean presidency

The other Mugabe who is lining up for the Zimbabwean presidency

Wife of President Robert Mugabe appears to have her sights set on succeeding her husband
The model of a gadget launch: Cultivate an atmosphere of mystery and excitement to sell stuff people didn't realise they needed

The model for a gadget launch

Cultivate an atmosphere of mystery and excitement to sell stuff people didn't realise they needed
Alice Roberts: She's done pretty well, for a boffin without a beard

She's done pretty well, for a boffin without a beard

Alice Roberts talks about her new book on evolution - and why her early TV work drew flak from (mostly male) colleagues
Get well soon, Joan Rivers - an inspiration, whether she likes it or not

Get well soon, Joan Rivers

She is awful. But she's also wonderful, not in spite of but because of the fact she's forever saying appalling things, argues Ellen E Jones
Doctor Who Into the Dalek review: A classic sci-fi adventure with all the spectacle of a blockbuster

A fresh take on an old foe

Doctor Who Into the Dalek more than compensated for last week's nonsensical offering