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Thinktank call to cut core out of ‘self-obsessed’ FSA

The Adam Smith Institute has slammed the FSA’s response to the financial crisis, saying the regulator’s inability to recognise the extent of its own failings compromises its ability to improve regulation.

Authors of the report, Tim Ambler and Keith Boyfield, say the FSA’s response, as well as the Turner review, are “completely out of tune with the causes of the financial crisis and the reforms that it makes necessary”.

They add that the central problem is the FSA’s “self-obsession and self-justification”.

The report, entitled, Regulatory Myopia, claims that the FSA has introduced “red herrings” such as international responsibilities, hedge funds and offshore funds to distract people from its own responsibility in the crisis.

It calls for the FSA to be streamlined rather than expan- ded and says core responsibilities should be given to other bodies such as the Financial Reporting Council, the Accounting Standards Board and non-executive directors of firms.

It champions the separation of retail and wholesale banking across the G20 as it believes doing this in the UK alone could damage its competitiveness. It calls for the regulator to iden-tify banks deemed too big to fail and to impose higher capital requirements on them.

It adds: “The financial sector, borrowers and investors should be made aware that, for other firms, markets will be allowed to take their course.

“Where any financial company is rescued by the Government, the directors should be treated as for bankruptcy, they should be disqualified, with pro rata loss of bonuses and pension rights, and the responsible regulator treated similarly.”

Highclere Financial Services partner Alan Lakey says: “One of the problems with safeguarding some banks and allowing others to fail is that you could create a run on the banks.

“The tripartite authorities have a duty to ensure as much financial stability as possible and if that means nationalising or assisting in mergers, then I would have thought that was a positive move.”

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