Surface Ripples

"Wither" Now The FSA?

The Conservative Party want to move responsibility for oversight of the UK financial system's stability back to the Bank of England. Is this the right course of action?

There is a high level of suspicion that the UK Financial Services Authority (created in 1997 by then-Chancellor Gordon Brown) "fell down on the job" and "didn't see the crisis coming" - along with the Bank of England, HM Treasury and various other regulators and central banks around the world. The Conservatives feel that the answer is to take away its powers and return them to the Bank of England which was previously responsible for overseeing the UK financial services sector. I would be reluctant to see this for several reasons:

Confusion:
There would be a period of transition when, for all we know, we would not know who was responsible for regulation. What would this do to confidence in the UK financial system? At a time when we are all struggling, should we be giving away one of our comparative advantages?

Cost:
There will be a cost to the taxpayer of changing things back to the way they were 10 years ago. This is not what we need now.

Continuity of Markets:
One of the reasons that the FSA was created was to allow the BoE to concentrate on monetary policy in the face of the increasingly complex financial services sector that was evolving. Moving back to the status quo ante risks reducing the levels of supervision needed.

Conflict (of Interest):
The BoE is there to supervise monetary policy and could be influenced by those whom it seeks to regulate.


More appropriate would be to review whether the FSA had the right rules and processes in place to start with, then whether it has sufficient "teeth" in terms of policy and remit as well as staff qualified to do the job. In the case of the latter, this means hiring people with industry experience. As it is, those currently employed by the FSA would most likely be shifted back under BoE contracts (as they were originally shifted out under FSA contracts when the latter was created). In the end, what would we achieve, apart from the equivalent of re-arranging the deck chairs on the Titanic? Previous "banking crises" have seen the BoE in charge of regulation, and how much did that help?

Labels: Regulation

posted by William Martin @ 20:16