The City Editor

By THIS IS MONEY
Updated:

 

The bill creating the Financial Services Authority was always going to be a monster. Forming a unitary financial watchdog from the remnants of the nine regulators patrolling the City was fraught with difficulties.

It was made more complex by the addition of a measure of mortgage regulation, the ombudsman system, and demands in the Cruickshank report that competition for banks should be strengthened.

The result is a regulatory nightmare. The bill, as it passes through the Lords, has attracted more than 2,000 amendments as almost every interest group in the financial community, including such distinguished self-regulators as the Takeover Panel - the mergers referee - have sought to protect their turf.

Amid this hyper-activity, it would be easy to forget the purpose of the FSA in the first place. It would be the first regulator worldwide to recognise that the meaningless barriers between banking, insurance and securities businesses are breaking down and that fractured regulation risks another Barings, which fell between the cracks of the banking and the securities police.

And it was an opportunity for London, as Europe's largest financial centre, to demonstrate that it is able to exhibit the same leader-ship in maintaining the integrity of markets as it has in establishing London as Europe's premier bond, foreign exchange, mergers and acquisitions, and share-dealing centre.

No doubt with a bill of such enormous complexity, there is much in it that has been drafted clumsily and is in need of clarification.

But the relish with which the Tories, in the company of City lobbyists, have sought to water down its provisions, has to be seen to be believed.

One line of attack has been the attempt to emulate the 'Cadbury committee' model for public companies of non-executive chairman and chief executive.

At present, Howard Davies has the role of executive chairman. The campaign against him is an irrelevance. A regulator is not a public company and there are enough advisory bodies around, such as the Board of Banking Supervision, to make certain that the power of a chairman is checked.

Ensuring that a banking, insurance or investment chief, who would protect City interests, is in control, is the only reason for even suggesting that the roles be separated.

This would be like putting former bosses of BNFL in charge of making sure that the nuclear facilities they run are safe. In fact, a split would work against efficient supervision.

No such oversight exists at the US Securities & Exchange Commission, or for that matter at the Bank of England, other than Congress or Parliament itself.

The other area of assault involves charges of market abuse, even though care has been taken to address concerns of the European Court on Human Rights.

The market-abuse powers are the last best hope that Britain will finally be equipped to introduce civil remedies in cases such as the alleged abuses by the City Slickers and Mirror group executives, or Geoffrey Robinson.

These cases end up in the Department of Trade and Industry and are rarely exposed or prosecuted.

The FSA market-abuse powers would remove them from the political arena and allow the kind of summary and speedy resolution seen in New York.

The government must not give ground in the House of Lords on these core issues.

Most watched Money videos