The end of the FSA

For years, the Financial Services Authority (FSA) has been lauded and applauded by Europeans and Americans as a model of supervisory structures. 

After the collapse of Northern Rock and the huge liquidity risk exposures demonstrated by Royal Bank of Scotland and HBOS, the institution became tarnished and is now viewed by many as a failed system.

So much so, that the Conservatives have announced they are going to kill it when they ascend to power next year, which is highly likely, and reconstruct the FSA's powers between the Bank of England and a new Consumer Protection Agency, similar to the one announced in the USA last month. 

A few of us might say that they are doing this because the current Chancellor has done the exact opposite, removing power from the Bank and giving it to the FSA ... but that would be churlish, wouldn't it?

However, those of us who remember that far back, may remember the previous regime where each part of the industry had its own self-regulatory body: the Securities and Futures Authority (SFA), the Investment Management Regulatory Organisation (IMRO), the Personal Investment Authority (PIA) and more.

In fact, many of these were supersets of former authorities.  For example, the Personal Investment Authority was the successor to the Life Assurance and Unit Trust Regulatory Organisation (LAUTRO) and the Financial Intermediaries, Managers and Brokers Regulatory Association (FIMBRA).

All in all, you therefore have a system that has evolved, morphed and grown over time from self-regulating bodies that didn't work, to regulatory bodies that didn't work, to super-regulatory bodies that didn't work.

How the heck anyone thinks the Bank of England will do a better job than these dedicated regulatory bodies, that didn't work, is beyond me.

Will have to read the Conservatives ideas very carefully as I'm already wondering what a Consumer Protection Agency has got to do with Liquidity Risk, Credit Default Swaps, Securitisation and more.

The danger here is that they replace one broken system with something worse.

  

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Comments

[Pragmatist]

Agreed. No regulator is "too big to fail" ;-)

Regardless of how regulators are organised, the devil is in the detail - the extent to which market participants and regulators understand the products offered, the assumptions that underpin those products, and who stands to gain from their sale.

[Mike Bennett]

Isn't the problem that this word "regulation" covers two different meanings: regulation for the protection of consumers - which politicians understand - and regulation for the health of the economy, which they don't.