Who regulates the FSA?

This month I draw your attention to the FSA. Love them or loathe them, in one form or another the regulators are here to stay. But one problem that arises with regulation is the following: once the regulator starts its work, how does it know where to stop? Who the hell regulates the regulator?

Who, to be more precise, ensures that a balance is struck between effective regulation and a punitive regime, which removes services beyond the reach and pocket of the customer?
I have been alarmed to note, whilst observing regulatory developments in the UK, that the regulator seems to be moving from regulation to a policy making role. This is an extremely dangerous development and reflects the style of government more akin to a banana republic.
After all, I don’t believe that any of us saw the name of Hector Sants and Lord Turner at the hustings in the recent election. If they have not been elected as members of the house, how can these civil servants become involved in making policy? Two examples to illustrate my point: Lord Turner, recently sitting in front of the Treasury Select Committee, stated that the entire UK lending sector should be changed to fit a Canadian model rather than keeping its current format. Perhaps he would like to take his ideas to Saskatchewan and see whether the size and vibrancy of the two commercial economies are really so similar. As regards Mr Sants, at the beginning of the recent MMR consultation period, Mr Sants was seen on Sky, BBC and ITV telling us the outcome before the consultation period had even come to an end; a remarkable example of clairvoyance?
The FSA’s public protestations about the need for heavier regulation seem misdirected in light of the flagrant gaps in overall regulation. In addition, I feel attention should be given to a more well-mannered style of regulation. Financial institutions and individuals working in the industry are not some insidious group of charlatans, vagrants and carpet baggers. We have done pretty well in acting with utmost good faith over the last 350 years. The tone of most directives from this regulator is combative and often impolite. As all of us in this industry are touched either directly or indirectly by the FSA, the levels of stress exerted on the individual in other circumstances would trigger prolonged sick leave due to stress and claims of thousands of pounds in compensation. An associate told me recently, that he received a letter telling him he should attend a FSA roadshow but without a word of request or invitation. The letter came from the Firm Communication Team at the FSA. Does this title mean the team dealing with small firms or does it instead refer to the manner of communication? And this style of communication extends further. When returns are due professionals are not asked politely to fill in the form but are threatened with fines, censure and suspension before they have even done anything wrong. I am sure that, to some of those who engage with the FSA it feels as if they are being treated like the ship’s monkey, not the captain.
I am glad to see that the Conservatives (and not the coalition as this is a Tory intiative) seem to have taken the initiative in replacing the FSA by 2012 with regulation moving to the Bank of England. It remains to be seen how their thinking develops. You may feel that I am trying to advocate a deregulated market, as happened in the US, but this is far from the case. What I am advocating is a considered consultative form of forward regulation. That is, unless you want to stamp out the last camp fires of financial services advice to be replaced by a bland, beige mediocre one-size-fits-all scenario.
Both regulator and central government need to be reminded that Great Britain has been and hopefully will continue to be a financial services innovator, which is why we are one of the leading financial services hubs in the world. Regulation will always be playing catch up with innovation but, with a consultative approach taking advantage of two-way dialogue, some of the flagrant abuses
may be stopped and some of the more dubious banking derivative schemes may be prevented.
What seems to be happening instead is that, rather than finding the bad apple in the barrel and dealing with that, the regulator is simply mashing up all the good eating apples.
While some of the changes on the horizon may provide a glimmer of hope, do not smile too soon and remember that when the KGB changed its name to the FSB it retained most of its original officers but then took on even more sweeping power.  There’s not always much to celebrate in a name change.