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Face the realities of a new regulator

With the ever increa-sing pressure to reinvent the regulatory structure, it is inevitable that we will see significant changes to the existing landscape over the coming years. Discussion over regulatory reform has heated up in recent weeks, with the three main political parties all chipping in their 10 cents. The Government wants the FSA to remain as the main supervisor, operating under the rules drawn up by Adair Turner. It would also strengthen the framework for financial stability, including a new Council for Financial Stability. The Conservatives, on the other hand, have publicly pledged to abolish the FSA, replacing it with a Consumer Protection Agency and a strengthened Bank of England responsible for both macro and micro-prudential regulation of all banks, building societies and other significant institutions.

Finally, the Liberal Democrats propose to keep the FSA intact as a unitary regulator and take a partic-ularly aggressive approach to break-ing up “superbanks”.

However, what- ever the outcome, perhaps we should exercise caution and consider the reality of a change in regulator?

When it was announced that the Personal Investment Authority would change to the FSA in 1997, the staff remained largely intact, the offices remained the same and the existing rules were simply transferred across to the new regulator.

These rules were then consulted on, only for the FSA to make them even stricter. There was certainly no clean break or wholesale root and branch reform, which many had been hoping for.

There was also a lengthy transition period in which the two regulators existed side by side, inevitably causing problems of its own. While the end of the FSA may seem app- ealing to many in theory, in practice, you must be careful what you wish for.

If we must have a new regulator, there are certainly lessons to be learnt from this experience. We would not want to see a situation similar to the introduction of the PIA, when even tighter regulation came into force, carried out by the same regulator in all but name.

We must rem-ember that appro-priate implemen-tation of existing regulation and better supervision can be more effective than new regulatory structures. In them-selves, new structures do not automatically lead to better out-comes for firms or consumers. This can only be achieved by setting clear regu- latory objectives, which are consistent and focused on prot-ecting the consumer.

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