Authority aims to be forward looking

THE new City watchdog lacks clarity and must be bolder about protecting consumers hit by years of misleading sales tactics, two former top policymakers have warned.
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The financial crisis prompted Britain to scrap the decade-old Financial Services Authority and replace it with the Financial Conduct Authority in April.

It supervises some of the world’s biggest foreign exchange, stock, bond, commodities and derivatives markets.

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FCA non-executive chairman John Griffith-Jones said in his maiden speech that he was developing a “radar screen” to spot problems earlier and stamp out bad behaviour such as Libor interest rate rigging.

But Hector Sants, who headed the FSA until last year, and Paul Myners, the City Minister during the financial crisis, said the FCA had its work cut out.

Lord Myners said moves toward tougher supervision began under the FSA and that Mr Griffith-Jones had made a safe speech that left him a little disappointed.

Britain’s banks have so far paid out more than £10bn in compensation for misleading consumers about loan insurance, the latest in a string of sales scandals spanning two decades.

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Lord Myners said many of the directors and non-executives at lenders that sold loan insurance were still in their jobs.

“I would have liked to have got a sense the FCA had a more challenging position. I didn’t really hear that,” he told an event organised by The City UK, which promotes Britain as a financial centre.

“I fear the FCA, like all regulators, runs the risk of being captured by the regulator. I did not hear a radical agenda.”

Mr Griffiths-Jones has already faced calls to stand down from the FCA over his previous role as chairman of auditor KPMG, which failed to flag up problems at Halifax Bank of Scotland.

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HBOS was brought to its knees by reckless lending and billions of pounds of bad debts, but KMPG signed off its accounts in 2008.

The FCA has insisted that Mr Griffith-Jones was subject to a rigorous appointment process for the watchdog role.

Mr Sants, part-architect of the new supervisory system, said there were several areas where “greater clarity” was needed to help restore public trust in financial services.

“We need to understand a bit more clearly what the FCA’s risk tolerance actually is,” he said.

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The FCA’s approach to the wholesale market and the extent to which consumers are responsible for what they buy were also unclear, added Mr Sants, who is now head of compliance at Barclays.

“To reset the agenda between firms and consumers you have to be bold,” he said.

Etay Katz, a financial services lawyer at Allen & Overy, said there was a “waiting game” as banks sought clarity from the FCA on how they can develop new products.

“The trick is to look at the radar and capture the right target and not use a scattergun approach and create a lot of collateral damage along the way,” he said.

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Mr Griffith-Jones said it was early days and the FCA board and executives were determined to get it right.

“I think we have got off to a respectable start. Even if you have doubts, give us the benefit of them,” he said.

In his speech, Mr Griffith-Jones highlighted the important contribution of the financial services industry to UK plc. “They are fundamental to the economy as a whole from the high street to the home: more than one million jobs, 14 per cent of GDP, £5 trillion of managed assets and a global insurance centre are but a few of the well-known facts,” he said.

“But with size and success comes responsibility. Today, London is an international financial centre of choice, not a financial centre of necessity. And to be chosen, all parts of the operation need to work well together, as cogs in an expertly designed, exceedingly complex machine.”

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Chris Cummings, the chief executive at The City UK, said his group’s aim is to make the UK an attractive place for financial and professional services.

He called for an open and predictable relationship with the regulator.

“We therefore need regulation that takes on board an international perspective,” said Mr Cummings, who is from Leeds.

“This includes the regulator taking a proactive lead in EU discussions, and being rigorous and effective in those discussions.

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“Collectively, we also need to ensure that when promoting the UK overseas, we do not rely on our old strengths like time zone and geography and instead focus on new strengths such as our tax regime.

“The FCA has said it wants to listen to and move with the industry, which we warmly welcome.

“We in turn look forward to working closely together.”