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FSA opts for “bias to conservatism”

FSA chairman Adair Turner says where the regulator is concerned about the riskiness of trading activity it will move to a “bias to conservatism”.

Speaking at the Confederation of British Industry annual conference today, Turner said the FSA has had to change its approach to regulating the markets.

He said: “In the years running up to the crisis, it was the strong mindset of the FSA…that we assumed that financial innovation was always beneficial, that more trading and more liquidity creation was always valuable, that ever more complex products were by definition beneficial because they completed more markets, allowing a more precise matching of instruments to investor demand for liquidity, risk and return combinations.

“We have had to change that mindset and we have now done so and that has implications for our regulatory approach. It means for instance that in setting capital against trading activity we will move from a bias in favour of more trading to a bias to conservatism, whenever we are worried about risk and whenever the real value of the activity is unclear.”

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There are 2 comments at the moment, we would love to hear your opinion too.

  1. A tricky one to balance against the FSA’s manifest and entrenched bias towards the banks, not least in view of the fact that it was the recklessness of the banks that led to the present economic crisis.

    Actually, isn’t this an oblique confession that what is now being proposed is what the FSA should have been doing all along? Or am I just biased?

  2. It’s quite ironic really. The FSA using teh word Bias as if it has good conotations when they want it to be so, but it is a bad word when they refer to commission bias (not that I think commission bias should be allowed to occur and not that I have seen it with a true IFA)

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