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Light touch rockulation

One could wisecrack about how the only actual practical example of light touch regulation turned out to be light touch rockulation. One might demand that the FSA instead of politicking, spinning, manipulating and indeed reinventing the wheel and of course reinventing the model just got on with the day job of regulating. It has clearly not been doing that so well.

One might hurl abuse at McCarthy and Sants, question their abilities and demand more scalps than that of Briault and indeed the team concerned though to what end I am not sure. One might consider what it means for every other firm, the risk of overreaction – principle replaced by rule, light touch by heavy handed interference or indeed what it all means for a regulator under duress.

One might call for the FSA to be broken up. One day indeed like some overmerged conglomerate it probably will be.

But let’s leave those arguments for another day. One might muse that whilst the FSA was worrying about the failure of HSBC, Barclays, Lloyds TSB and HBoS, the salient, noisy, arrogant, stock market darling escaped scrutiny. What better warning sign is there than that – a bank achieving “growth” in a way that no-one else can replicate. And yet. I am still not sure that is the issue. Show me the contrarian investor or the astute journalist who warned about it all.

Northern Rock wasn’t engaging in fraud. It isn’t Enron or Parmalat. It was simply overly relying on one type of funding and growing too fast. It was reckless but no more than that. The FSA should have seen it coming but then so, arguably, should Money Marketing.

But it is not so much that the FSA failed to see this coming. It is that its systems and its processes are so poor that it maybe never had a chance of seeing this coming.
Take the issue of the paperwork. We need the reasons why and the reasons why not written down but we do not have them.

To recap. An arrow panel visit took place in February 2006. But the arrow panel was not provided with recorded details of meetings between Rock and other FSA staff – only their conclusions. As a result it obviously came to the wrong conclusion about the level of supervision required. Between then and the beginning of the crisis in August 2007, only one set of the now vital “close and continuous” meetings took place between the FSA and Northern Rock. This was in April 2007.

Out of five meetings the FSA’s internal auditors only found agendas and a typed record of one part of one of them, presumably stained with industry funded FSA coffee. Partial minutes? Did the minute taker doze off? How so? Where’s the filing cabinet, the computer disk, the post it note? Did anything find its way to the shredding machine in the last few months? Forgive me. But I have to ask because I assume that is an illegal act.

A few years ago, readers may remember, Money Marketing ran what proved to be a controversial story about the regulator. An IFA had taped an FSA supervisory team visit. Three FSA staff sat in his office and for a great deal of the time chatted to each other and achieved very little. We know. We had to transcribe hours of the stuff. Subsequently the FSA went into a mighty huff about all this.

One press officer suggested that Money Marketing was trying to suggest the FSA were a bunch of extra-terrestrial lizards. Actually what had happened was that one of their own team had suggested the FSA enforcement team were a bunch of Masons. Funnily enough, Money Marketing was saying nothing of the sort. We reported the comment. But we also heard conversations about Tim Henman and who amongst the team had the “gayest” ring tone.

But our coverage was nothing to do with lizards or Masons. The story revealed that the team from the FSA did not behave like regulators should. They were lackadaisical. They were shoddy. They were unprofessional. They acted like teenagers.

What I didn’t think at the time was that FSA teams covering something as important as one of the UK’s fastest growing banks would be behaving in the same way. The Tiners, Waters and Blands of this world actually present a very professional and competent face to the world but what on earth has been going on below them?

In the next year or so the FSA will be visiting IFAs across the country. They will be examining IFAs’ paperwork and considering in some detail whether they are treating their customers fairly. I suggest that IFAs make a few jokes at the visiting regulators’ expense. But when advisers ask the FSA have you found the paperwork yet, I suggest it should be a deadly serious question. Money Marketing is certainly going to keep asking. Indeed let’s start now. Have you found the paperwork yet?


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