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Ex-FSA chair warns wealth firms to plan for intrusive regulatory creep

by Elsa Buchanan on Jun 12, 2014 at 10:19

Ex-FSA chair warns wealth firms to plan for intrusive regulatory creep

Wealth managers are set to face increasingly aggressive regulatory enforcement and intervention in areas that were previously untouched, former chairman of the Financial Services Authority (FSA) Howard Davies has warned.

Speaking at an event for global family offices, Davies (pictured), a former deputy governor of the Bank of England, said he had been surprised by how fast financial regulators had implemented new controls following the onset of the credit crisis in 2008.

The UK’s Financial Conduct Authority (FCA) was ‘already taking much more aggressive enforcement’, he said. ‘The pendulum has swung with violence. Before, you could do anything unless the regulator told you not to, now you can’t do anything unless the regulator tells you that you can.’

Davies warned: ‘There will be more regulatory creep, getting into more areas.’

With this in mind, he outlined the amplified role and growing importance of national regulators, which could mean global regulatory standards are overlooked in some cases.

‘We are seeing a Balkanisation of regulation, which wasn’t expected post-2008. Countries are very suspicious of [one another’s financial] regulator… and I expect a breakdown of regional and global arrangements, so national regulation will prevail.’

As a result, he anticipates the financial system will become ‘less efficient’, and warns capital could become trapped in certain jurisdictions, making it difficult for institutions there to raise capital at the same cost.

‘In my view, [this means] the cost of credit supplied by banks will be more expensive, and banks will find it more difficult to manage their own balance sheets. But at the same time, central banks are scared of credit expansion through non-regulated institutions, such as shadow banking.’

Davies also took issue with recent comments made by International Monetary Fund managing director Christine Lagarde about systemic risk.

She warned that the banking industry has made little progress and the ‘too big to fail problem’ among the world’s largest financial institutions remains unresolved, as banking reform has not made enough progress.

Davies questioned the IMF’s position in making such comments as it does not hold a regulatory role.

2 comments so far. Why not have your say?

Tony Clarkin

Jun 12, 2014 at 12:42

Who is this intrusive regulatory creep?

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Jun 12, 2014 at 15:41

For once I have to sympathise with Lagarde. Systemic risk hasn't gone away despite more intrusive & draconian "regulatory creep" that has been occurring since FSA 1986. What planet is Davies living on? He and Turner have been largely responsible for doctrines & rules that have very little to do with proper regulation of financial services in UK. Comparing the "old style" market that self-regulated itself (quite honourably & well as it turned out for '00s of years) versus the current undemocratic, qualification led, market destructive, dictatorial sham for market protection that recognises and applauds TBTF and a host of other unconventional and mad schemes will ultimately lead to a market meltdown that many think can be prevented by men like Davies & Turner. A hundred years ago some historians claimed (incorrectly) that men were led by donkeys but in financial services today there are clearly many asses who consider regulation to be positive and worthwhile. Well this regulatory creep is costing investors and tax payers billions, allows people like Davies & Turner to sit in ivory towers whilst ultimately protecting nobody. Need I remind those left that Equitable Life and a host of other scandals have hardly assisted anyone but our glorious regulators. The recent spate of fines across UK, EU and USA are more akin to mafia shakedowns than legitimate penalties. When a bank e.g. Paribas $10bn, takes a regulatory hit the solution is to bail in, tap shareholders & tax payers but rarely do regulators and the culprit managers answer to anyone. Rarely do regulators admit their errors and put things right. The natural law of market erosion and reconstruction is being warped by men like Davies.

These obtuse rules, regulations & doctrines cannot be good for the general economy and if Davies's warning is correct then further collateral damage will be done to the City's reputation and perhaps more importantly so the UK economy and industry as a whole.

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