Since the Libor fixing scandal hit the news there has been a great deal of political manoeuvring over the type of inquiry that should take place. On Thursday evening the Government won the day and initially at least, a parliamentary committee will conduct the inquiry.
However, the role of the FSA seems to have been missed during the political debate. Much of the discussion has centered on a culture that puts profit before everything and which led directly to various scandals, such as payment protection insurance misselling, interest rate swaps and now Libor-fixing. If such a culture exists it has developed and thrived under the eye of the FSA since 2001.
When FSMA came into being in December 2001, it was hailed by the Government as a new all-powerful statutory regulator with sweeping powers to really make its mark.
The powers granted to the FSA under FSMA are wide. There is no question in my mind that the failure of the FSA to regulate the banking sector effectively is not a case of the regulatory structure being wrong.
It is more a case of political interference (the explicit encouragement of light touch regulation in the section of the financial services industry which has done the most damage) and incompetence of the FSA itself and the management team. It had all the powers it needed to do the job properly, it just singularly failed to do so.
The FSA has a web page on its thematic work which “involves analysing a particular product, market or practice to see if there are widescale issues that we need to act on”.
The FSA should have been doing thematic work on the banking sector to nip any corrosive culture in the bud. Instead, if you look at the thematic work it has done it includes insurance comparison websites, work on financial promotions and investments for children.
It smacks of the FSA doing the easy things rather than tackling the big jobs.
So where does this leave us? We may have a new regulatory structure on the horizon but most of the staff will simply transfer over from the FSA and I do not consider there was that much wrong with the structure anyway.
This is really quite worrying – we could be sleepwalking into another decade or more of regulatory failure.
Also, shouldn’t the inquiry that is to take place include as one of its main terms of reference the role and failure of the FSA in dealing with any corrosive banking culture.
It is time that the FSA was put under the spotlight and made to face up to its own dismal failings. In doing so, maybe there is a chance that things may change for the better. Otherwise, we will be back here again before we know it.
Alan Hughes is a partner at solicitors Foot Anstey