Most would say that the split-up of the FSA was no more or less than the Tories had clearly trailed fully a year before the general election. True, but a little simplistic. The Chancellor’s announcement at the Mansion House, while not a shock, was a surprise. To me, anyway.
Even to Tory supporters, the Osborne plan to abolish the FSA and to produce two or even three successors did not look like his master stroke. Indeed it had the hallmark of a policy that was rushed out to catch the mood of that time. Then it started to get embedded and Tories were increasingly unable to back away from a plan which was beginning to look like a lot more trouble than it was worth. So the coalition seemed to be a gift, enabling the Chancellor not only to get off the hook but even to trade an unwanted policy for concessions from the Lib-Dems. How wrong can you be? Now we know, they meant it all along.
Instead of debating whether the FSA has “utterly failed” – it has not – we now need to determine how we want this new structure to work. The Chancellor has prescribed the shape of the frame, but there is a lot of canvas inside that still looks very blank. Adair Turner has announced how he looks forward to working with the government to flesh out the plan. What he should have said was that he looked forward to working with the industry; that is where the practical thinking needs to come from.
As we are now to have two main regulators, many will be recalling the doubtful pleasure of dual regulation, which arose so often under the pre-FSA regime. Is that to return? Is every firm going to enjoy the attention of both the Bank of England and the new Consumer Protection & Markets Authority? Somehow, regulating thousands of IFAs and insurance brokers does not sound entirely like the Bank’s style. If that is right and the smallest firms will have only one regulator to contend with, the activities of the CPMA will include prudential regulation, for some sectors at least. And at the other end of the scale, will the CPMA be supervising banks’ compliance with conduct of business rules? There must be a case for minimising the extent of dual regulation. The industry must make its voice on this well heard.
If the gods are merciful, we will be spared a replacement rulebook. Although the new regulators may struggle with the concept of a 5000 page document, too large to lift, being known as a handbook, they should be implored to adopt the wretched thing. With so many of the rules emanating from that master of regulation in Brussels, changes of substance will be very limited, but just when you thought you knew your way around the forest, they decided to re-arrange the trees. Let’s hope not.
One thing that we can be fairly sure about is that we will not see huge swathes of new staff brought to the party. The FSA has done a sterling job in building up numbers – surely this government will not let itself preside over further growth. Somehow, whatever the degree of duplication in the dual system, the target must be to ensure that the whole of the FSA is more than the sum of its new-found parts. And that goes for cost too.
But the real fun will be watching the legislation take shape. As those who enjoyed participation in the construction of FSMA 2000 will well recollect, the parliamentary time required for new regulatory legislation puts even hunting in the shade. But the reality is that the devil is seldom in the primary legislation; it is from the implementing statutory orders and regulations that the forked tail is more frequently seen protruding. All of this will be subjected to endless consultation, even with the government’s tight timeframe. The industry must not allow itself the luxury of succumbing to consultation fatigue just as vital questions are debated. Even full engagement may not win the day, but at least we will be able to tell our grandchildren how we fought to save the City.