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Ex-FSA staff warn on risks of regulatory split

Former regulators are warning that the restructure of the FSA will bring about a new set of risks, with one ex-regulator calling the move “a waste of time and money”.

In June 2010, Chancellor George Osborne set out plans for the FSA to be scrapped and replaced by the Prudential Regulation Authority, part of the Bank of England, and the Consumer Protection and Markets Authority, which was later rebranded the Financial Conduct Authority.

Law firm Pinsent Masons head of the financial services regulatory team Tim Dolan, who worked in the FSA’s enforcement division, says: “It is a complete waste of time and money. I am all for changing the focus of the regulator and I am all for taking a step back and reviewing whether the regulator’s rules, objectives and staff are appropriate but splitting up the regulator is an unnecessary distraction. It is change for change’s sake and entirely motivated by politics.”

Former FSA chief operating officer David Kenmir (pictured), who is now PricewaterhouseCoopers regulatory practice partner says: “The regulator has been perceived as one of the causes of the financial crisis, so it was hardly surprising it would be a target for this Government but structural change alone does not sort problems out.”

Kenmir says the restructure reflects the fundamental change in regulatory approach that has been driven by FSA senior management.

He says: “I believe Hector Sants, Sally Dewar, Jon Pain, Margaret Cole, myself and others have done a really good job in changing the regulator to make it more intrusive and less trusting. The FSA has fundamentally changed already, so the structural change is just further implementation of that.”

KPMG head of regulatory risk consulting Fiona Fry is a former head of investigations at the FSA and one of the FSA’s predecessor bodies, the Investment Management Regulatory Organisation. Fry says: “What we do not want to see is a lot of internal focus on structure and process at a time when there are still a lot of regulatory challenges to be dealt with.”

She notes that the uncertainty internally at the FSA over the restructure has led to an increase in staff leaving.

Fry says: “There are a lot of firms to supervise and the regulator has to have a lot of people to do that and they will not all be experienced. That is a challenge. We see firms constantly frustrated with conversations they have had with their supervisor where the supervisor has not got the experience to deal with a particular issue.”

But Bovill consultant Richard Scrivener, who worked in the FSA’s conduct risk team, believes the restructure is beneficial for regulation as supervisors can concentrate on purely conduct or prudential issues.

He says: “Historically, the supervision teams have had to look at both the prudential and conduct of business issues. They have spent a lot of time on the prudential side and that has been at the expense of where the tyres hit the ground, that is, in the sale of products and the customer point of contact.
“By having a regulator that is dedicated to conduct, then there is an opportunity to dive deeper and get more involved.”

Consultant David Severn, a former FSA head of retail policy, believes splitting the regulator into the FCA and the PRA presents a risk that the two bodies will fail to co-ordinate and co-operate with each other, and may increase regulatory costs.

But he says: “What is more important is what powers the new regulators are given and how they are going to exercise those powers.”

Even before Osborne announced the new regulatory structure, the FSA was moving to adopt a more intrusive style of regulation. In shaping the new regulators, the FSA has pushed for product intervention powers which will allow the FCA to take action at an earlier stage, such as the design of products where it sees risk of consumer detriment.

Kenmir says: “FCA chief executive Martin Wheatley has been given an incredibly hard job. Every time the FCA intervenes in a product, there will be people who come out of the wood-work who will say ’this is a good product in certain circumstances,’ and they will probably be right and the FCA will be blamed for intervening.

“And when there is a problem with a product the FCA has not intervened in, it will be blamed for that too. The task is incredibly complex and the regulator has made a start in creating a strategy to address that task but there is still a long way to go.”

Dolan says: “There is a massive difficulty the FCA is going to have in actually understanding the products and propositions that are being offered. Products offered in the retail marketplace are not always straightforward. The FSA may say ’products should be straightforward, otherwise they should not be marketed,’ but it is not always that simple.”

Fry says the success of the new regulators will depend not on the underlying structure but on whether the right people are in place and the focus and the objectives of the regulator are clear.

She says: “I understand why this is being done but the big risk is there will be too much focus on the restructure achieving the change that is needed, when it will always be down to people, leadership and clarity of objectives. If they do not get that right, they can reorganise as many times as they like but they will not get the right result.”


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There are 24 comments at the moment, we would love to hear your opinion too.

  1. “I believe Hector Sants, Sally Dewar, Jon Pain, Margaret Cole, myself and others have done a really good job in changing the regulator to make it more intrusive and less trusting.

    WE DON’T!

  2. These are the people who failed under the FSA banner – why would anyone take any notice of their views on the new set-up?

  3. whitey or bluey 6th March 2012 at 9:12 am

    A good start and finish to all this would be not to call one half of the split “Prudential Regulation Authority”. It’s a bit unfair on the Pru who have, after all, spent a couple of hundred years building up their wholly justified reputation.

  4. I think the real issue is being missed here, in that the cost to the industry for the FSA to rebrand to the FCA and the PRA is disgusting, at a time when everyone is being told to tighten their belts and a complete waste of taxpayers and ultimately insurance payers money. A divided regulator will mean double standard, double rules and no doubt; double confusion. Recent mis-selling of various contracts shows that we need a regulator. However, we need one that does not become a burden on the public or ties the industry up in needless paperwork.

  5. Beverley Callander 6th March 2012 at 9:15 am

    What about the expense to already stretched small companies having to reprint all stationery for the sake of a name change! Ridiculous in this climate, what a waste of time and money to us all. Focus on the job in hand without additional costs in a difficult climate. the public are just getting to grips as to what the FSA do, why confuse them and us even more…again!

  6. Andy Cunningham 6th March 2012 at 9:26 am

    whole heartedly agree with the comment about the Pru, any future cock ups which there will be would clearly confuse the public and could indeed tarnish the Prudentials reputation.

  7. “Done a really good job” …this is delusion gone mad.

    The FSA was a bloated, self-serving bureaucratic mess serving as a puppy to the treasury and big 5 banks.

    And does anyone really think the new structure will be any better with most of the same characters involved?

  8. Soren Lorenson 6th March 2012 at 9:41 am

    It’s all a case of re-arranging very expensive deckchairs on the Titanic.

    Regulation has now over-reached itself in that it is now designing the business models of the firms it regulates along its lines rather than policing them.

    We need less regulators, not more. We need simple, workable rules, not more and we need the same level of justice that everyone else in the UK receives. In short we need a brand new regulator for IFA’s.

    This splitting and changing of nameplates wont change a thing and this industry is still heading for disaster.

  9. So there you have it boys and girls, get your solicitors exams, join the FSA et al and then move into an even bigger salaried job with the law firms who feed off the regulators. Cronyism? You Bet!

  10. its funny that all the ex fsa people in the artricle all end up with the big auditors who end up getting all the cosy jobs acting as administrators when firms that supposedly have been audited by these outfits or put on the FSA’s go pear shaped.

    How they can have the audacity to say they have done a good job is staggering.

    Its never their fault, jobs for the boys

  11. Every time I use the word ‘corruption’ in these posts I get moderated so I am not going to use the word ‘corruption’ and nor am I implying that there is any corruption in the relationship between the FSA and the big accountancy practices that seem to benefit so greatly from what it does.

    Cosy is a better word, don’t you think?

  12. I am going to throw a big question out to the masses.

    Do we think that the new regulator (FCA) is going to be homed at OFT HQ or FSA HQ?

    The reason I say this, we have a number of business partners looking to obtain new Consumer Credit Licenses’ and they have been told they will have an approval visit in 2014! – Yes 2014!!!! :- So the OFT will be operating in 2014.

    Secondly, FSA activities seem to have grinded to a halt and all the leaders are leaving the sinking regulatory ship. The Individual Registration for mortgage brokers has been shelved.

    So is the OFT the new Daddy???

    Lee Birkett

  13. Justin Credible 6th March 2012 at 10:06 am

    Fry says: “What we do not want to see is a lot of internal focus on structure and process at a time when there are still a lot of regulatory challenges to be dealt with.”
    Couldn’t the same be said by the vast majority of good advisory firms who just want to get on with the face to face advice with consumers that they perceive as valuable? Instead they try to micro manage our advice processes and completely miss the macro issues thundering down the track which derail more people’s finances than the font size on my documentation, or the 55th risk warning repeated for the tenth time in all the rain forest we have to give them to help them make an ‘informed’ decision / choice? The details of which they forget within days, if they read it at all.

  14. Even though they have left the FSA these people have the arrogance to continue to pee down our backs and tell us its raining.

    The time for slapping yourselves on the back will soon be over, and I for one, will NOT be un-buttoning my flies when you are all in flames.

  15. Becoming a headcase IFA 6th March 2012 at 10:11 am

    I started reading this with interest and then David Kenmir said he thought he and Sants and the rest had done a good job.

  16. All these regulators seem to miss the point. More than half the mis-selling scandals turn out not to be scandals at all! By far the majority of PPI sales were beneficial to customers, but it was only a scandal because the prescribed process could not be proven beyond all doubt to have been followed, now virtually everyone who were sold these plans now get a refund. The ones who claimed can also get a partial refund.
    Pension misselling for SERPS gave millions of compensation to people who were advised to take out appropriate personal pensions, when now it appears the SERPS benefits will be worthless!
    Endowments are a lot better than nothing to repay a loan at end of term. This led to interest only mortgages booming, now, with lenders insisting on large equity content on IO loans, many customers are stuck with their lender, and their rates are increasing! Oh for an endowment to fall back on, not perfect, but better than nothing.
    After years investigating the evils of investment bonds vs Unit trusts, Warnings of misselling et al, they found there is no measurable difference in the two tax systems, so dropped the issue.
    But every day we get reports of criminal acts from advisers, mortgage brokers, city dealers in manipulating markets or stealing client money. We get fringe products that are scams, and failure of counterparties, leading to client money loss. Who pays! Regulate for product approval, do not be too pedantic about tax structure, remember that although 15% return is not as good in hindsight than 18%, but a hell of a lot better than 0.5% on deposit. Yes, clients can make a shorter term loss, but approve products so there are few that can give 100% loss.
    Rant over

  17. With regards to PPI sales. Is it less expensive for companies to roll over and pay out rather than employ staff to really investigate whether the client is telling the truth and knew nothing about what they were taking on. A bit like endowment complaints. Its strange that client could remember what was said by the representative twenty years earlier whilst in the middle of wathching Coronation st or Eastenders. Clients were encourgaed to claim to the extent of templates being provided by certain claims management companies and web sites. When they did get compensation did they pay it off the mortgage, did they heck as like. The FSA also have responsibility to ensure that the financial services industry did not get ripped off by clients as well as the other way round, but that would not have made good press for them. Their attittude is always them horrible nasty persons who work in the financial services industry.

  18. I don’t normally agree with all the FSA-bashing that goes on here. However someone who thinks that “more intrusive and less trusting” is a “really good job” really shouldn’t have been working at a principle-based regulator.

    “More knowledgeable and challenging” – yes, by all means. Less trusting? No wonder the relationship with IFAs is sour. Reap what you sow, and all that.

  19. Kenmir says: “FCA chief executive Martin Wheatley has been given an incredibly hard job. Every time the FCA intervenes in a product, there will be people who come out of the wood-work who will say ’this is a good product in certain circumstances,’ and they will probably be right and the FCA will be blamed for intervening.

    “And when there is a problem with a product the FCA has not intervened in, it will be blamed for that too”.
    Welcome to the same world we live in. Blamed whatever we do.

  20. What ever the problem was with the FSA, it won’t go away with a change of title. Until the “do your best to see no evil, hear no evil” FSMA 2000 is revisited, I don’t really see how the fundamental issues that allowed the regulator to completely miss impending doom, will alter?

  21. Exasperated Me 6th March 2012 at 2:34 pm

    I am exasperated….

  22. Love thy neighbour 6th March 2012 at 3:40 pm

    When your anti social neighbours move to another house across town you can celebrate but when they simply change the name of the house nothing changes. 🙁

  23. RegulatorSaurusRex 7th March 2012 at 9:05 pm

    Q. How do you get a bunch of has been regulatory failures into a column?

    A. You give them a soapbox.

  24. Barak Obama said “You can put lipstick on a pig, it’s still a pig!!!!!” Need I say more.

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