View the article online at http://citywire.co.uk/money/article/a651971
Should the financial regulator be fined for its mistakes?
The FSA has been slammed by MPs for its shortcomings, but why don't the bosses face harsher penalties?
MPs have slapped the Financial Services Authority (FSA) on the wrist for failing to do its job properly and exposing consumers to what they describe as ‘some of the worst scandals in UK financial history’.
It’s a pretty shocking legacy that the FSA will leave behind when it is superseded by the Financial Conduct Authority (FCA) later this year. Since the FSA was established out of the Securities and Investments Board in 1997 it has dropped the ball on many occasion.
The most notable is obviously its failure to prevent the banking crisis that hit in 2007 which ended in taxpayer-funded bailouts and a re-organisation of high street banking. And let’s not even talk about the most recent banking debacle surrounding Libor.
Scandals that were smaller, but of no less importance to the individuals involved, that the FSA failed to spot can easily be reeled off: Arch Cru, Equitable Life, payment protection insurance (PPI) claims, split-cap investment trusts, precipice bonds, self-cert mortgages, endowment policies, Keydata. The list goes on.
The Treasury Select Committee was right to admonish the FSA over its ‘box-ticking culture’ which meant it failed to spot the scandals in front of its nose. So concerned was the FSA with filling out the forms that it didn’t bother investigating what was happening at the heart of organisations, or more importantly how consumers were being treated.
The comments in the Committee’s report are an embarrassing attack for the FSA and you could say its punishment is being abolished and replaced by the FCA.
But is this really punishment enough for those at the top of the tree who oversaw the organisation's failures?
Yes, it may an OK punishment for the underlings in the rest of the FSA to have to go through the shame of having their organisation scrapped but the top bosses who had ultimate sign off over what the organisation was doing should be held far more accountable.
The FSA has made some meek admissions to being in the wrong. In October Lord Turner, FSA chairman, said ‘bad rules’ were allowed to remain in place and ‘a lot of very clever people got it very wrong’ – what an understatement.
The fact is the FSA didn’t bother to put the rules right because the people at the top wouldn’t have to be accountable for it. In fact, they’re so unaccountable that they can be rewarded for their failures; take the recently knighted FSA chief executive Hector Sants.
The FSA is very keen to hand out fines and ban people from working in financial services, but what if they had to live by their own rules and suffer punishment where it hurts; in their pockets.
How about we reduce bonuses and freeze pay for those who drop the ball? The taxpayer may not fund the FSA but it certainly picks up the bill when things go wrong.
The government should have more power over the financial regulator and it should be accountable to the people, but our one has for so long been an autonomous body.
Maybe a series of penalties for those at the head of regulatory failings would provoke a change of attitude, a change from box-ticking to real investigation, and ensure that the FCA doesn’t just become a rebranded FSA.
The Citywire guide to investment trusts
In association with Aberdeen Asset Management
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by Gavin Lumsden on Mar 07, 2014 at 18:53