RSS

Contact us

Sunday 7 September 2008

A fundamental crisis of credibility

Simon Nixon says loss of authority at the Bank and the Treasury matter even more than the failings of the FSA

During the boom years, it was fashionable to say that London owed its success as a financial centre partly to the quality of its regulation. Thanks to the Financial Services Authority’s astonishing internal audit of its supervision of Northern Rock, published last week, we can now see what that means. For Northern Rock, the UK’s fabled light-touch regulation was very nearly no-touch regulation. Those charged with supervising the Newcastle-based mortgage lender barely bothered to call on it; when they did, they didn’t know what questions to ask; afterwards, they didn’t bother to keep proper records. With a watchdog like that, no wonder financial services firms flocked to London.

Of course, the FSA insists its failures over Northern Rock were a one-off. Take that with a pinch of salt. On its own evidence, the organisation is under-staffed, under-skilled and lacks appropriate expertise and experience. Take with another pinch of salt FSA chief executive Hector Sants’s promise that he will now hire people with the right skills to do the job. People with the right skills just don’t seem to want to work there: the FSA has been struggling for months to find a credible new chairman to succeed Sir Callum McCarthy.

But the real significance of this report is not what it says about the FSA, but what it reveals about the wider state of UK regulation. At this stage in the most serious financial crisis in decades, the FSA is something of a sideshow. The organisations that must steer us out of this mess are the other two members of Britain’s ‘tripartite’ regulatory system, the Treasury and the Bank of England. Sadly, neither plans to publish an audit of their own substantial failures over Northern Rock. If they did, it would soon become apparent that what Northern Rock exposed was more than just the inadequacies of a few duff regulators, but a fundamental crisis in the credibility of Britain’s financial authorities.

Just look at the Treasury’s recent record. While US Treasury Secretary Hank Paulson set the agenda this week with the biggest shake-up of US financial regulation since the Great Depression, the best the clueless UK Treasury could come up with was a couple of half-baked proposals for international co- operation dreamed up by a spin doctor and leaked to the Financial Times. That follows the botched reforms of capital gains tax and the non-dom rules as well as the five months of extraordinary dithering over Northern Rock, long past the point at which it became obvious nationalisation was the only solution and with risks to the taxpayer mounting by the day. The FT columnist Philip Stephens recently remarked that this former Whitehall Rolls Royce had been reduced to a Trabant. It’s hard to disagree. These are the kind of blunders that Whitehall’s Sir Humphreys are supposed to help ministers avoid. Either the Treasury is no longer capable of providing reliable advice, or it has lost so much credibility its advice is no longer taken.

More articles from: Simon Nixon | this section

Print this article  |  Email to a friend  |  Permalink  |   Comment

Post this entry to:   del.icio.us | Digg | Newsvine | NowPublic | Reddit

Advertisement

Spectator Business | Apollo Magazine

Corporate | Advertising | Privacy | Terms

Spectator, 22 Old Queen Street, London, SW1H 9HP

All Articles and Content Copyright ©2008 by The Spectator | All Rights Reserved