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Categories:Other,Regulation

Scrutiny on the bounty

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Last week’s episode of embarrassing bodies was grosser than usual and I turned away nauseous on at least three occasions. In this particular instance, the embarrassing bodies were not on Channel 4 but were seated, fully-clothed in front of the Treasury select committee. Embarrassing? Yes. Embarrassed? No.

Being interrogated by a committee of MPs must be somewhat intimidating and one would imagine any participant would arrive copiously armed with facts and figures to support the various arguments and to refute any suggested alternatives. What we wit- nessed were feeble attempts to support tenuous theories and half-baked assumptions using vague allusions to thematic visits and an archaic Australian survey. Not the actions of a cautious regulator, more of an inept regulator.

The ability to provide information was so clearly deficient as to suggest that it was deliberate. The select committee demanded answers and no doubt will receive them in time to flavour the eventual report to the Government, however, the lack of data served to forestall what might have turned into a determined forensic scrutiny. And that must be avoided at all costs.

What a sad contrast to typical commercial management. When a company elects to make seismic changes to its business model, which might involve throwing out old machinery and retooling, it will invar- iably undertake a fundamental review of its current practices. It will consider the relevant options, assess the future risks, calculate the cost of any changes and then place a value on the benefits thereof before deciding whether to move forward.

It can then adopt one of two strategies. It can proceed on basis one, where its business ambitions are achieved in the most cost-effective and productive manner or, on basis two, where it becomes an agent of chaos and ploughs ahead with some fanciful scheme bearing all the stumbling trademarks of corporate dementia.

Last week’s face-off confirmed that basis two is the favoured route and Hector Sants verified that there is not a single thing the TSC can do about it. Indeed, his languid manner and insouciant responses were defiant, challenging them to conjure up some strategy.

Back in 2000, when the FSMA was being debate Lord Stewartby stated: “This legislation will give the FSA tremendous powers, possibly making it the most powerful institution in the land…but if individuals and businesses are to be accountable to the FSA, the FSA must be accountable within the democratic system.”

Melanie Johnson, MP, on behalf of the Government, stated: “The result will be to enable the FSA to operate as an effective, fair and accountable regulator.”

As we know, this is not the case. Andrew Tyrie elicited a dubious response from Sants that the FSA is, effectively, unaccountable to them or to Parliament.

What of the quasi-promise to restore the long stop? It would certainly save the vast expenditure of an intended judicial review and would right one of the many industry wrongs, but I will believe it when it happens. Hector promised to look at it again, not change it.

Yet again the same hoary justifications were trotted out regarding consumer confidence, despite the evidence within the FSA’s own consumer research http://www.fsa.gov.uk/pubs/consumer-research/crpr83.pdf that consumer confidence is reasonably high - given the current economic malaise - and that 98 per cent of advisers’ clients believe the advice given was appropriate for their circumstances.

In the round, the FSA’s appearance was most unacceptable.

Alan Lakey is partner at Highclere Financial Services

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