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FSA warns of “turf war” if its powers are broken up

The FSA has admitted that reform of its conduct supervision is needed, but warned that a turf war could break out if its enforcement activity is separated out among different bodies.

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.


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There are 35 comments at the moment, we would love to hear your opinion too.

  1. I would refer Mr Sants to Section 14 of the Civil Service Code (though this lot probably denies that it applies to them).

    Splitting up the Regulator is a party political matter. It is a pledge of the next Conservative Government to scrap Labour-FSA’s structure. Ergo, Sants should keep his mouth firmly shut on the subject.

  2. Stable horse bolt. Cock.

  3. For as long as the chiefs of Britain’s major financial institutions and the regulators whose job it is to uphold the integrity of same continue to be motivated by greed at the expenses of the consumer nothing will change. Fundamental problems demand fundamental solutions, anything less is futile.

  4. “Shutting the stable door after the horse has bolted” comes to mind.

    The FSA was asleep on the job and failed miserably in its duties to regulate.

    How could it fail to see that offering mortgages of 125% of valuation, or self certified mortgages were sustainable business models.

    In its failings to regulate these areas the FSA is complicit in relying totally on the assumption that house prices can only ever increase in value.

    Mr Sants is now looking to pass the buck and excuse the FSA from its deriliction of duty.

    The FSA/Government/Monoploies and Mergers Commission has also been negligent in allowing Lloyds TSB to swallow up HBOS at a terrific cost to Lloyds TSB shareholders.

    The incompetence and arrogance of the FSA beggars belief.

    The only teeth it has is that of a bully, able to threaten and bully small IFAs into submission but totally out of its depth and s**t scared when it comes to regulating the banks and large financial institutions. All the while drawing large salaries and paying large bonuses!!!!!!

    How will the FSA mystery shop the next complex financial instrument/package put together by the wide boys in the banking sector. The banks senior executives could not understand the securitised sub prime mortgages. What hope of the FSA understanding such strucutre let alone being able or willing to regualte them?

  5. Struggling to compare the list of FSA successes with their failures.
    On the sucesses – hmm, was it pensions, no can’t have been, there was a mis-selling review. What about opt-outs – no can’t have been that either. FSAVCs – no that didn’t work either, mis-sold too. Must be endowments then, with retrospective rules (MPs take note) – no wrong again – or precipice bonds, or self cert mortgages, or 125% mortgages, or Banking!! (small issue). Got bored thinking of the list now.
    Let’s face it Hector why should there be any confidence at all in what you are planning. The turf war can’t have been worse.

  6. 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.

    Ahem … …

    Et tu, Brute??

    Words definitely intended for the FSA, methinks!! 🙂

  7. Rules but no rules. How about increasingly intrusive supervision? As you once said, you can’t have principles based regulation when too many of the regulated don’t have any principles, whatever level of qualifications they may have achieve.

  8. I wonder how big a bonus he will get if he manages to convince the Tories that they should keep the FSA and not scrapping it after the election.

  9. How many chances do the FSA want?
    They’ve almost criminally wasted the last goodness knows how many years, in the biblical sense looking at the speck in our eyes whilst ignoring the plank in their own.
    It’s all too late for the lame FSA to start getting heavy.

  10. Please everyone stop blaming self cert and 125% mortgages for the downfall of the economy. The amount of bad mortgages written in the uk are minute compared to losses that the banks and investment company’s have sustained.
    Put the blame square on the shoulders of the banks and their get rich quick schemes and the inability of the government to regulate them

  11. Who does Sants think he is? He says the financial services industry has yet to take responsibility for the economic crisis. What he means is the Banks have yet to do this. The poor small IFA is being tarnished with the same brush (yet again). Where was the FSA when all this dodgy lending was going on? What were they doing to regulate the banks then? They were in their offices thinking of ways to make life as a small IFA as hard and expensive as possible. They say a turf war could start if we go back to different regulators for different things. (Fimbra and lautro spring to mind). This worked well as our business is far too complex to have a “one size fits all approach” to regulation. Once again they get it wrong. Now they may well begally forced to do a U-turn on the Dec 2012 deadline as they could be acting outside the law by trying to disqualify currently qualified advisers simply because they would like to change the qualifacation bench Mark. I would urge all IFA’s to read page 36 of the Nov 09 edition of money marketing in which a learned barrister Peter Hamilton previously stated that “FSMA does not permit FSA to cancel authorisation simply because it has has changed its views on what the appropriate qualifications should be.” Therefore the cancelling of authorisation is uninforceable. Another one of their disasters is TFC (as admitted above). Most IFA’s have superb business relationships with their clients and do more than the TCF regime is supposed to do. Get off our backs and let us get on with advising our clients. I would strongly suggest that the FSA gets its its own house in order fully before starting to try to tidy up anyone elses.

  12. It would be most interesting for us all to have an independent audit of the impact that the FSA’s regulatory regime has had on the consumer. how has the consumer benefited from since 2004. is it more or less expensive to obtain financial advice or obtain a mortgage? Is the fact the the average lender’s arrangement fee for a mortgage is now probably £1000 or more as apposed to £295 which was the case prior to their 2004 purely inflationary or is most of this additional cost to be put down to the cost of regulation? Not to mention the fact that brokers have had to increase the fees they charge their customers to cover the Augmented cost which have been imposed on us. It seems to me that given the fact that the FSA itself is technically insolvent, the lunatics are now running the asylum.

  13. TCF is something most brokers/advisers do as second nature, particularly those working as individuals and in small firms where a happy client is most likely your next piece of new business. The FSA continue to refuse to acknowledge this or choose to ignore it and turn a blind eye to the large institutions where profit or volume/market share are more important than the individual and TCF is paid lip service.

  14. IFAs are committed Mr Sants, to their clients.

    Without inside knowledge of what hits someone’s bank account they rely upon referrals from satisfied clients rather than pressured bank management.

    It is indeed an issue of culture which needs to be addressed from the top down and in my opinion regulation must be driven from the bottom up, from what the consumer wants rather than what the shareholders expect or how much bonus is to be paid.

    Every problem has a simpler solution if you know where to look for it.

  15. What an utter shambles the Finance Industry is in if it is judged by the performance of the FSA , the Banks and Major Providers .

    All led by highly paid and over rewarded senior management

    The Consumers Association can monitor the products and services provided to the end users .

    All persons working for banks etc should be deemed to be salepersons not advisors

    IFAs if any are allowed to exist continue to advise their clients the majority of which judging by the advice I have received do a reasonably good job.

    Mr Sants and his cronies are condemned to the waste paper basket with the rest of the paper they have generated

  16. To state that the FSA’s ‘new intensive supervisory regime is delivering financial stability’ is incredible.

    Hector is asking us to accept that the FSA, in less than a year of ‘intensive supervision’ has brought financial stability, just like that, to the UK. (This is assuming he is only speaking of the UK and he hasn’t got the Gordon Brown arrogance of having saved the world!)

    If it was so easy, just a bit of ‘intensive supervision’ chaps, then what has the FSA been doing for the ten years it has been regulating the banks to allow the situation to arise that has lead to this mess?
    Sants is effectively saying that the FSA didn’t bother to do something that should have been second nature to his staff, that is just to go round, check things and then ‘tick the box’, its so easy anyone could do it. The biggest financial mess in 100 years with half a dozen UK banks having to be rescued, refinanced or nationalised when all that was need was a bit of ‘intensive supervision’. Incredible!!!

    As far as TCF is concerned any IFA or Mortgage Broker could have told him, as many including myself did, that his underlings at the FSA, because surely the senior staff were not involved!!!, couldn’t organise a p*** up at a brewery. Trying to use bureaucratic techniques to ‘regulate’ for ‘consumer outcomes’ demonstrates that these guys are on a different planet from the rest of us and are intent on regulation for regulations’ sake.
    [Just like the Civil Servant who insists 25% of the population must have their Criminal Records checked. If the office doing the checks gets it right 99% of the time then that means that 250,000 people will either be let cleared when they shouldn’t be or worse refused the clearance and therefore be incorrectly branded for life.]

    By the way the FSA’s stance on it’s own salaries and bonus culture has always been, that to get sufficiently qualified and talented staff, it has to pay top dollar!
    So ‘Anonymous 4.40’ that would be a success for the FSA staff then but a failure for regulation, the consumer and the industry who pay them.

    I agree with the ‘Man in Black’ and Mark Coffer. What I believe they are trying to do is just play musical chairs with as few as possible of the ‘elite’ loosing out. Hopefully all the chairs will be taken away so that when the music stops they ‘all fall down’.

    (Dictionary definition of elite suggests ‘best’ – ‘most talented’ or ‘most privileged’. I suggest the last is the most appropriate.)

  17. What are trying to do Hector, justify and keep your job with fat cat salary so that you can spend even more on further improvements to your ‘gin palace’.? FSA is not and never has been fit for purpose.

  18. The FSA must be split up – it cannot be a regulator and the consumer champion particlularly as it has failed miserably on both accounts.
    It now seems to think that short term virility and ‘catching’ the small fish will redeem it. It is broken so it needs fixing.
    I also hope its refusal of new lenders can be squared with stimulating a new competitive environment

  19. I would like the regulation of banks to be seperate from individual IFA/Brokers.
    The impact of banks on economy has been
    substantial but IFAs seem to be shouldering
    far more than their fair share of blame.
    Banks greedy practices have brought this country to its current position but all the FSA seem to worry about are the small fry. Amazing.

  20. IFAs are committed Mr Sants, to their clients.

    Without inside knowledge of what hits someone’s bank account they rely upon referrals from satisfied clients rather than pressured bank management.

    It is indeed an issue of culture which needs to be addressed from the top down and in my opinion regulation must be driven from the bottom up, from what the consumer wants rather than what the shareholders expect or how much bonus is to be paid.

    Every problem has a simpler solution if you know where to look for it.

  21. It takes a thief to catch a thief, it always will.

    Any trade of any description, the banker has to have his own skin in the game. Simple as, you will see the levels of risk taken reduce dramatically.

    I have had many bank traders as clients over the years, and they are the most risk averse investors I have ever dealt with (apart from one). Paranoid about losing even one dime.

  22. The FSA have been too busy building their own massive regulatory empire whilst ignoring the bl**dingly obvious. They acn only and will continue to Bully the small IFA businesses into submission and yet every piece of evidence suggets that we are the one that do it right and add value to the consumer. The FSA have added no value to the consumer whatsoever infact they have made everything more expensive to the consumer. I also believe that TCF as helped small businesses focus thier energies in a more productive way and proved to many how good we actaully are and how well we serve our customers. (too well too often). But once again the big boys paid cursory lip service to it and did b all about it. So what does Sants say it has failed. No Sants you and the FSA have Failed over and over again.

    Your time is up move on, get over it, get over yourself’s. Bunch of arrogant people.

  23. Please read what Sants actually said rather than turning this into a party political debate, clear & pragmatic decision are needed not knee jerk political jingoism based on personality. Sants is spot on when he says that the braking up of the FSA was not the way to re-regulate the financial services sector. Breaking up the regulator when it is the industry as a whole that failed is not the way forward; tripartite regulation failed we know that, hence why we had FSMA et al. if the sector managed itself in a way that was both ethical and prudent to a degree that it did not put G20 economies at risk, then the need for a stronger regulator would be somewhat mitigated. I believe the whole argument around splitting up the FSA plays straight into the hands of those who put the whole sector at risk in the first place. Blaming the FSA for the trouble we are in is comparable to blaming the police for crime in your local area.

    It’s time we all grew up and accepted this, we are now moving into a time when collective social responsibility and all that this carries is going to be the norm rather than something novel to put into the corporate brochures, annual speeches or pay lip service to in front of select committees etc.

  24. Hector Sants is starting to sound like am man who is empire building. When have the FSA EVER taken responsibility for their failings? It is they that chose not to individually register all mortgage advisers and are now changing their stance. Did they not realise that the potential for fraud etc existed. The FSA lack of forethought has allowed crooks to operate in the industry and now the industry is paying the price through lack of trust created by FSA shortsightedness, refusal to accept full responsibility and always shifting the blame on to the industry. The FSA should be broken up and let the new regulators focus on what they know.

  25. Michael White CEO Emailmortgages 10th November 2009 at 10:20 am

    In response to Mark Dawson and the issue of ‘collective responsibility’, unfortunately you are very wide of the mark indeed. It is more about proportionate responsibility and in this context the highest proportion of blame must fall with the lenders, starting with the banks.

    In practice, the FSA both create the rules and are meant to enforce them. The police merely attempt to enforce which is why your analogy in regard to the police also fails.

    Hector Sants is playing self preservation politics are the moment. Quite an interesting character, decides not to accept his bonus because he is acutely aware of the FSA’s failings and then tries the ‘don’t shoot the messenger routine’. Priceless!

    We are in for a rough ride dealing with highly intelligent people who appear to have been given complete autonomy to intervene how and whenever they wish. However, the problem with the application of theory is just that…it is theoretical. Many of the FSA officers have insufficient practical experience of the industry they are writing the rules for. Those that do were possibly unsuccessful in the commercial world.

    The brains of the outfit, Hector Sants et al, can surround themselves with lots of ‘yes sir’ folk and recognise they are never going to be sacked for generally proposing overly negative and quite incompetent remedies plus adopting a blame culture to boot. Finally, lets not forget the huge costs to keep this effective ‘quango’ in operation and then attempt to offset such costs against the benefits it has brought?…..tough one that!

  26. F-Pack Crack Team 10th November 2009 at 10:37 am

    Trying to protect our jobs are we Mr Sants?

    Your time is up, get a real job cleaning the streets.

  27. I agree with Michael White’s comments above. I am concerned that replacing the FSA completely rather than just reforming it will just add extra costs. That has to be balanced with a concern that the FSA being a Ltd company and therefore I assume subject to company law as are it’s directors may in fact end up so far in the proverbial itself that it has to be replaced itself and quickly…………

  28. If self cert and 125% mortgages are to blame for the demise of the banks and the economy that is due to the relaxation on lending brought about by this government. It was this government that viewed property ownership as a panacea. The man in the street believed that pensions are bad and that property ownership was good as “house values never go down” or so they thought. The Labour government discouraged saving in Pensions and made ISA’s confusing, saving does not help the economy short term. They wanted people to borrow and spend and thats what they did. The government increased their tax take by increasing stamp duty and make job creation schemes (such as HIPS) to reduce the unemployment figures. It has all been one massive bubble, inflated by Gordon and Tony.

  29. Its so interesting to see how the FSA are waving the big stick everywhere now that their existance and cushy jobs are under threat. As so oftern however the real targets are being missed. Whilst small IFAs are working to RDR business shape, the banks are still at it.
    I am asked every time I go into Lloyds TSB if I want to ‘review my account or savings’.
    My parents (dad 81 and mum 78) went into HBOS to improve the interest on their accounts – specific query from them to have the best paying safe interest account. Dad calls me when he gets home, somewhat concerned – didnt know what they had got. Youve guessed it, they had been sold a couple of corporate bonds!! The salesman had not made any attempt to find out what investments they had. I explained to my parents exactly what they had been sold and the possible capital risk. They had no idea, nothing had been expalined to them.
    The ‘investment’ has been unscrambled and loss made up. However I know that the banks have sold millions of these to customers wanting safe deposit returns. Once we see capital losses, we will be faced with a MASSIVE misselling issue – one that the FSA are fully aware of but doing nothing about. Again!
    The resulting lack of consumer confidence in our industry (Again) caused by the banks (Again) known about by the FSA but no action being taken to prevent it happening (Again) will no doubt end up in a wholesale thematic review of Bond sales costing IFAs a packet whilst the banks just refund customers out of profits that belong to the tax payer and shareholders.

    That, FSA, is why you need to go. Regulation is needed but start at the Macro end – too difficult for our current regulator

  30. The FSA will get no sympathy on it’s impending demise from a single IFA. They have spent every hour of their extistance making our lives harder, however it was the FSA who were caught with their pants down. The financial meltdown was the fault of greedy bankers and a regulator more intent on attacking IFAs as a soft target, than regulating more complex issues that they probably didn’t understand. They didn’t even know about Lehmans until they had already gone bust, despite sharing a building with them. And then they have the audacity to blame IFAs for selling structured products that they were suppossed to be regulating?
    Goodbye and good ridance we may all cry – those of us who will still be left come next spring that is. Joint responsability – don’t make us laugh. More like trying to keep hold of as many jobs for the boys when the Bank of England takes over.

  31. Hector wants the banks to ‘be afraid, be very afraid’. Now apparently the banks and regulator need to work together. Which is it Hector, or are they both sound bytes?

    The FSA has failed – they do not comprehend risk, systemic or otherwise and have dropped the ball on too many occasions. Nothing has changed and it doesnt look like anything will change.

    Why are we relying on the regulator that got us into this mess to get us out of it?

  32. There’s a rumour going round (apparently on good authority) that Hector Sants intends to quit the FSA next year. Doubtless there’ll be a hefty pay off and an even heftier hello from his next employers.

    Nothing like seeing a job badly done through to completion, just like your predecessor John Tiner, whose parting brickbat to the industry was TCF which, you’ve now decided hasn’t worked. Maybe it might have worked a little better if the FSA had had the decency to tell the industry exactly what was expected of it.

    Would you care to comment Mr Sants?

  33. Re anon above.. et tu brute. I recently read the interview with Mr Briault, who headed the FSA dept which failed to regulate the banks. No personal responsibility there only ‘collective failings’
    Now TCF has failed… at enormous cost to the industry.
    At what point do they say, we have failed and are not competent to do our job so should disband.

  34. Sants covering his own rear end again?

  35. Most comments here are utter nonsense…What’s wrong with a 125% mortgage? As long as the lender feels comfortable with the risk being taken, so be it. The fact that they’ve actually realised a loss because of a recession is besides the business idea behind the concept of risk v reward. I’d say, when assessing & pricing risk, stress test various scenarios and price accordingly. A 125% mortgage should have something like a £10,000 arrangement fee and an interest rate of 8%. That way, those desperate enough to have it will & those with the guts to lend will…it’s just business, stop nannying the state…

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