Sants defends FSA staff from 'out of touch' accusations
The chief executive of the UK’s Financial Services Authority has rebuffed criticism that the regulator is staffed by “out of touch bureaucrats”, after again admitting regret over the flawed supervision of Northern Rock ahead of its collapse last year.
Chief executive Hector Sants said, in his opening speech at the FSA's annual public meeting in London today, that last year had been arguably the most challenging since the FSA's creation 10 years ago.
He added that the market should be in no doubt that “we regret the events surrounding Northern Rock”.
“I have already said that the standard of supervision of Northern Rock prior to the summer of 2007 was unacceptable to the FSA and that we regret what happened," he said. "I have also said how important it is that we learn lessons from that failure. I believe we have. Our Internal Audit report sets out clearly what we need to do.”
Sants said that the FSA has already made many of the necessary changes, and that the watchdog will complete its “supervisory enhancement programme” by the end of the year. The programme includes a commitment to have a minimum supervisory resource for all high impact firms.
However, Sants defended criticism surrounding the quality of the FSA staff. "As I have said many times, we need the right people in the right jobs. This means the right mix of career regulators and experienced market practitioners, built on a vibrant graduate programme. I believe we have achieved much this year towards this goal."
He added: “Of course, there is always more to do. But I would like to dispel, I hope once and for all, the view of some commentators that the FSA is staffed by out of touch bureaucrats. Anyone who meets my colleagues, or even looks at our website, would realise that this is simply not the case.”
On the regulator’s internal culture, Sants said that this year the FSA has moved closer to the culture that it aspires to, and, in particular has demonstrated its willingness to be brave and to make difficult, directive judgements – even when we know we will be criticised by vested interests. The most recent example of this was over short selling.
But Sants said that the increased level of supervision would lead to higher costs. The regulator expects its levels of expenditure shown in the business plan for 2008-09 to increase.
He said: "I do, however, believe that this necessary investment is supported by the firms who will benefit from the resultant higher quality supervision.”
He added that there have been several acts playing out in the markets that will mould what will happen in the year ahead. "The first act, last summer, was a liquidity crisis," he said. “In the autumn we then moved into the second act where the concern has been about capital. We are now anticipating the third act, which is likely to feature a downturn in the real economy "
However, he added: “The good news is that we are moving through the acts. But the risks in each are material and neither we, nor our firms, can afford to relax. Inevitably we will enter the final act - the ‘new normal’, which will require firms to adapt their business models, consumers their spending patterns that will present new challenges."
-- Write to Duncan Kerr at dkerr@efinancialnews.com
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