Comment: Will new watchdogs really have more bite?

By TERRY MURDEN
Published on 29/08/2012 00:00

AFTER the mess created by the banking crisis, what could possibly be worse than an under-regulated financial services sector? An over-regulated one, perhaps?

The existing system has been roundly condemned for failing to spot the crisis and for a series of other shortcomings related to mis-selling scandals and the like.

But the concern now emerging from compliance officers (see story below) is that the successor regime coming in next year will be no better and will have the extra burden of adding hugely to company costs. And as costs are deemed to make firms uncompetitive, there are further worries that Britain’s financial services will pay a heavy international price for tightening up on supervision.

The government is damned if it does, damned if it doesn’t. It is under pressure to clamp down on wayward behaviour, but when it does it is accused of burdening business with red tape.

Maybe the financial services sector has only itself to blame. An unsympathetic public, ripped off and thoroughly hacked off by misbehaviour, lies and practices tantamount to daylight robbery, has gone beyond forgiveness and demands retribution.

Proper supervision needs to be both fit for purpose and capable of delivering appropriate and proportionate penalties. The public may call for bankers to be jailed – or worse – but no-one has yet detected a crime, only a lot of recklessness and greed, which are not criminal acts,

The new supervisory structure will scrap the Financial Services Authority (FSA) and two new watchdogs will be born to work alongside the Bank of England. We are promised a more judgmental approach so that regulators will be more hands-on in letting it be known where they see problems and how they want them resolved.

But will this new structure be any more effective than the one it replaces? In particular, will it prevent future financial crises? An alarming two-thirds of respondents to a survey thought not, or probably not.

It’s a sentiment I have shared for some time, as the introduction of new regulators is hardly risk-free. Replacing one body able to take a holistic approach with several bodies provides a temptation for one to pass the blame for failure to another. And for all its failings, the FSA has had some successes, not least in tackling insider dealing.

There was an argument for improving its performance rather than starting again, but politics played a part in the coalition government wanting rid of a creation of the Labour party.

Draghi takes the risk of skipping US symposium

BEN Bernanke will be hosting the symposium of bankers at Jackson Hole in Wyoming in the United States this weekend, but one notable absentee will be Mario Draghi, the president of the European Central Bank (ECB), who has cried off because of a heavy workload.

No matter what the Federal Reserve chairman thinks of Draghi’s absence, the ECB does have important matters of its own to address next week – it is widely expected to announce a bond-buying exercise to help ease the debt problems still weighing on the eurozone.

Draghi said recently that the ECB would do “whatever it takes” to save the euro and he is expected, therefore, to be as good as his word.

He is certainly being drawn increasingly closer to the centre of the eurozone action, which also risks pitching him against the German government which does not support the bond-buying scheme, but whose representatives will be at Jackson Hole.

No announcements on fresh stimulus for the American economy are expected from the symposium, but the ECB meets next Thursday, a week ahead of the Fed, and may set the ball rolling on a new wave of transatlantic support.

Float proves Scotland is waving, not drowning

IT’s been a while, but Scotland is expecting its first Alternative Investment Market flotation this year.

There had been expectations of a rush of flotations, given the difficulties that companies have faced with raising debt finance. But it hasn’t happened.

One flotation hardly heralds a shift in the climate, but it will provide some encouragement to the M&A advisory community which has been struggling for deals.