Sants warns of ‘tick box regulation’ from Europe

FSA chief executive Hector Sants has warned the European approach to supervision risks a return to “tick box regulation”.

Speaking at a British Bankers’ Association briefing in London today, Sants (pictured) said the new regulatory approach of the Prudential Regulation Authority and the Financial Conduct Authority is expected to “abolish tick box regulation”.

He explained that prior to the recent financial crisis UK banking supervision was focused on ensuring banks had enough capital, rather than firm specific risks.

Sants said the new approach will not rely on tougher standards for capital and liquidity, and will inevitably mean a more intensive style of supervision.

He said: “But it should not involve unnecessary data collection and unnecessary questioning. If there is a risk of tick box prudential regulation, it will come from Europe.

“The issue here is that the European approach to regulation is not only to avoid disorderly failure, but also seeks to ensure common standards across Europe. This seems to be creating a ‘bias to data’ and runs the risk of being at variance with the necessity of having customised risk assessments of firms.”

Sants argued the move to the new regulatory framework was not just about supervisors changing their behaviour, but firms too. He said there was a need for firms to “show a greater willingness to proactively comply with supervisory judgements.”

He added: “I am not asking firms to forgo their right to challenge their supervisor if their decisions have not properly been made. I am suggesting that dragging their feet in complying with requests when it is obvious to all that the outcome is in the best interest of society as a whole, is not a behaviour which should survive in the new world.”

The FSA is set to move to a ’twin peaks’ model of supervision within the FSA from April 2 this year, ahead of the move to the PRA and FCA early next year.

Under the new structure Sants will become chief executive of the PRA and deputy governor at the Bank of England.