Surface Ripples

The FSA Sharpens Its Claws

In my blog "The New Two-Speed Financial System" in April 2009, I commented on the risks of a financial system composed of government and non-government owned banks. Recent announcements of more hefty fines by the FSA have just appeared, so what does this mean?

The way I see the FSA's task, there are a number of stages: first, it needs to review itself and understand why it may not have been as effective as it could have been. This has been done.

Second, it needs to be staffed by the right people - those who actually understand the risks being measured and monitored. For this, it needs people who understand the banking system and its products - i.e. bankers. That needs to change and may well be now. The FSA is recruiting again, and bankers are going in.

Third, it needs to be respected by those whom it regulates and by the government. Previous fines have been insufficient to deter what is essentially irresponsible (and, at times, criminal) behaviour on the part of those working in the financial system. The focus on "hitting them where it hurts" (i.e. their pocket books) is long overdue and will also help keep levies down on those who act as good corporate citizens.

Fourth, penalties must also extend to individuals more rather than letting them hide behind the company. Again, this is changing with heavier fines and harsher punishment for those who tempt fate...

Finally, it would be good to see the good citizens mentioned above being rewarded with lower charges for their good behaviour, lower capital costs or even (heresy!) taxes. Admittedly, this would need some thought on how to implement, but what better way of encouraging good behaviour than showing that "virtue has its own rewards"? The concept of fiduciary duty has been all but lost in recent years - this is what British bankers were once famous for. How much would it really take to return to those days?

Labels: Financial

posted by William Martin @ 01:50