FSA chief executive Hector Sants (pictured) told Bloomberg in London today that the regulator needs to maintain a concentrated enforcement function with clear responsibility for investigating and punishing misconduct.
He said: “I strongly believe that dividing responsibility for enforcement activity would invite a fragmentation of approaches and a turf war between the different bodies involved.
“This was apparent in the structure which predated the creation of the FSA when the then multiple regulators struggled to speak with a united voice and lost authority as a result. Our credible deterrence philosophy complements our more intrusive and intensive style of supervision.”
Sants also admitted that the treating customers fairly regime has failed consumers.
He said: “Historically the FSA was, in practice, operating a twin peaks system. The oversight of the domestic institutions focused on the treating customers fairly programme. However, this focus has not delivered the outcomes that consumers deserve.
“This is because old-style consumer protection regulation is, in my view, largely reactive not proactive.”
The FSA has also claimed that the financial industry has failed to take “collective responsibility” for the economic crisis.
Sants said while the FSA’s new intensive supervisory regime is delivering financial stability, reform will only come if both the regulator and the regulated are “committed to genuine change”.
Sants said: “There remains, I believe, an absence of the acceptance of collective responsibility for what has happened. I personally remain unconvinced that all senior management have taken on board the need to change and operate in a genuinely different manner.
“I believe it is important to recognise that there are limits to what regulatory rules can achieve. It would be a mistake not to recognise that some of the failures which have occurred have their roots in the issues of culture and behaviour.”
Sants warned that the FSA will be increasingly proactive in testing risks inherent in products from their development and using techniques such as mystery shopping to test the true outcome for consumers.
He also said the FSA will consider how it can assess senior executives’ impact on an institution’s culture as part of its authorisation regime in an upcoming discussion paper.