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Sants: Judgement based approach is justified

The Prudential Regulation Authority’s judgement based approach to regulation is justified because regulators have different incentives and more information than individual firms, according to its chief executive designate Hector Sants.

The PRA will begin operating in 2013 with a “forward looking” supervisory approach, requiring the regulator to make judgements about what it expects to happen in the future.

It will also have the power in certain circumstances to overrule decisions made by a firm’s management, force a firm to stop writing business or to wind itself up.

During a speech setting out the PRA’s approach to regulating insurers at a conference in London yesterday, Sants asked himself why the judgement of regulators should be taken over that of firms.  

He said: “My conclusion on this difficult topic is that we should not presume regulators are somehow of a better quality and competence than management, and thus more likely to reach better judgements.

“However, it is reasonable to assume regulators have different incentives in reaching their conclusions and it is also reasonable to assume they can draw upon greater information, particularly in respect of peer group analyses, than individual management. In my view a judgement based approach is justifiable.”

He added the new powers should not be seen as a substitute for good governance and that they will not mean mistakes are not made.

He said: “A regulator cannot and should not absolve management of the primary responsibility of running their firm responsibly. Nor will the regulator always be right. It is inherent in the judgement based system that both management and regulators will, at times and in hindsight, make mistakes.”

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Comments

There are 17 comments at the moment, we would love to hear your opinion too.

  1. And what qualifications will these people hold to make judgements?

    At least judges have to acquire legal qualifications before they can set off on the journey to becoming a judge.

  2. The regulator will make mistakes – haven’t heard of them owning up to any so far!!!!!!

  3. So here we have it, Hector is judge, jury and executioner, nice of him to admit the regulator may get things wrong, but he needs to realise from past experience they very rarely get things right !!

    I do hope that one day he will fall foul of his own noose.

  4. Utter Crystal Balls.

  5. The Big Hec says “will make mistakes” – Not if mistakes are made.

    Who pays for these mistakes where the consequence is people put out of work, mortgages unpaid, repossession and poverty. Not to mention Parents not able to feed their children or themselves.

    It is time that these people were dragged out of the closeted life they lead and had their faces rubbed in the real world.

    Then and only then will they stop and think before they firstly speak and subsequently act.

  6. Many spiritualists, astrologers, and other people involved in “New Age” religions or other approaches to spirituality think December 21, 2012 (or December 12, 2012) is going to be a big day. They say that the ancient Mayan calendar’s cycle will stop and then restart then, and that something significant will take place. Their predictions range from cataclysmic events to the world being “reborn” Dec. 21, 2012 (or Dec. 12, 2012).

    I think Hector may have greater aspersions than we first thought.

  7. Sant’s has said “To make judgements about what it expects to happen in the future” Chrystal ball and tarrot cards on the table and Gypsy Rose Lee and the clowns holding hands round it

    Also what are different incentives “Not Money ” changing hands yet again ”

    Same crap different sign over the door

  8. Street Judges act as police, judge, jury and, if necessary, on-the-spot executioner. However capital punishment in Mega-City One is rarely used, though deaths while resisting arrest are numerous. Numerous writers have used the Judge System to satirize contemporary politics.

    Judges, once appointed, can be broadly characterised as “Street Judges” (who patrol the city).

  9. WHAT A LOAD OF TOSH! 21st June 2011 at 11:10 am

    The PRA will begin operating in 2013 with a “forward looking” supervisory approach, requiring the regulator to make judgements about what it expects to happen in the future.

    WHAT A LOAD OF TOSH! AND THIS MAN GETS HOW MUCH?

  10. John Rawicz-Szczerbo 21st June 2011 at 12:49 pm

    I think the forward looking words of Pastor Martin Niemoller sums it up:

    First they came for the Communists
    And I did not speak out
    Because I was not a Communist
    Then they came for the Socialists
    And I did not speak out
    Because I was not a Socialist
    Then they came for the trade unionists
    And I did not speak out
    Because I was not a trade unionist
    Then they came for the Jews
    And I did not speak out
    Because I was not a Jew
    Then they came for me
    And there was no one left
    To speak out for me

  11. “Sants asked himself why the judgement of regulators should be taken over that of firms. ”
    Perhaps I’m taking this out of context, but wouldn’t it be a better idea for all concerned if some other qualified people were consulted on this rather important point too?
    Perhaps Mr Sants isn’t a megalomaniac or delusional but if the quote above is accurate (and to be fair, it may not be …) giving speaches like the one reported here may give a rather different impression and is unlikely to reassure the public or the financial services industry that it is being overseen by someone who understands all the important issues and is weighing them appropriately.

  12. John Rawicz-Szczerbo 21st June 2011 at 5:50 pm

    I believe the ‘forward looking’ words of Pastor Martin Niemoller say it all:

    First they came for the Communists
    And I did not speak out
    Because I was not a Communist
    Then they came for the Socialists
    And I did not speak out
    Because I was not a Socialist
    Then they came for the trade unionists
    And I did not speak out
    Because I was not a trade unionist
    Then they came for the Jews
    And I did not speak out
    Because I was not a Jew
    Then they came for me
    And there was no one left
    To speak out for me

  13. So, we will all have to live by rules and regulations dreamed up by people who will use their special skills of looking into the future to ensure that such rules and regulations are fit for purpose.

    Uhmm!

  14. @ Bill Wells – I am sure I saw a Sci Fi film where they did that. oh yes “Minority Report”.

  15. Julian Stevens 22nd June 2011 at 8:50 am

    First we had rules-based regulation, but that doesn’t seem to have achieved perfection. Next we had pronciples-based regulation, but that doesn’t seem to hage achieved perfection either. So now, for the time being until the next great idea, we’re to have judgement-based regulation, which Mr Sants appears to implying will be based on the notion that we (the regulator) know best because regulators have “different incentives in reaching their conclusions”. Incentives completely divorced from practical commercial considerations, many might say. And still the mistakes will continue, but never mind that because the regulator is never held accountable for the consequences of its mistakes. In fact, it makes no difference how many mistakes the regulator makes, because the performance related bonuses continue to be paid regardless. So, for the regulators, it’s always a win-win situation, no matter how well or otherwise it discharges its responsibilities. As for the rest of you who have to fund it all, just pipe down and pay up or pack up and push off.

  16. But hasn’t past performance revealed FSA senior staff as having VERY poor judgement?

  17. But Norm, as the FSA keeps telling us past performance is no guide to future performance so having exhibited dire judgement in the past.
    In their view it must follow that their judgement can’t be as bad next time just because it was awful almost every other time up to now.
    Sorry, must dash, time for my medication…..

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