The surprise announcement this morning by the chief executive of the Financial Services Authority, Hector Sants, that he will leave by the summer presents a golden opportunity to re-model the way financial services regulation is delivered in this country. With a relatively new chairman in Lord Turner and now a new chief executive in the offing there will be little temptation on anyone's part to defend the regulatory status quo regardless of who wins the forthcoming General Election.Few people will mourn Sants' departure.
For many he will be tainted with being asleep on watch as banks collapsed around him, starting with the unedifying sight of people having to queue in the streets for hours to take out their money from
Northern Rock and continuing with the failure to spot that risk management was failing catastrophically in parts of the markets he was meant to regulate. While missing the real problems, the FSA was busy annoying independent financial advisers and brokers with its Retail Distribution Review and a raft of potentially burdensome regulations. Those are both probably slightly harsh judgements but that is how many will see his three years in charge.
What is probably more interesting is the future. Some of the coverage of his resignation has been very misleading, suggesting that the Conservatives want to abolish the FSA and merge most of what it does into a revamped Bank or England regulatory department. This is only half of the story. The other part of it is the creation of a Consumer Protection Agency that will regulate most of the retail financial services sector, including IFAs and insurance brokers. Where and how the boundary between the Bank and the CPA will be drawn is not very clear and this is the major fault line running through the Tory plans.
Should they win the election, my guess is that the Tories will like the look and sound of Lord Turner with his stinging criticisms of socially useless financial products and give him a key role in reshaping regulation. They will then be looking for someone to head up the CPA with - remember - a brief to protect consumers, not look after practitioners. That person wouldn't have been Hector Sants, so he has been wise to depart on his terms now.
If the Tories fail to win then we will probably find ourselves in the area of a hung Parliament with the Liberal Democrats calling some of the shots. They have criticised the Conservative proposals and favour beefing up the current regime, aligning it more closely with what is coming out of the European Union (albeit that much of that is up for grabs too). Labour wants to strengthen the existing tripartite arrangement (FSA, Bank and Treasury) and ensure better co-ordination between the three. Both these approaches again probably leave Lord Turner in position but with a more consumer-facing chief executive of the FSA (which will make it feel like a CPA but without the name change and all the uncertainty). What will that person look like is the million dollar question.
With bankers currently not enjoying the highest approval ratings from Joe Public it seems unlikely that anyone who has spent a large part of their career in the banking sector is going to be considered but it is hard to see how that job can be done by someone who does not have a solid background in the financial services sector. It makes one wonder whether the ideal candidate might be someone with an insurance, pensions or retail funds background.
