FSA chairman Callum McCarthy's latest speech again raises questions about the strategic direction of the organisation.
And that is just the official part of the speech rather than the unedited parts, which slipped through the checking process to be emailed to financial journalists around the country yesterday.
The staples were the same: the FSA is “promoting efficient, orderly and fair markets; helping the retail customer of financial services to get a fair deal; and making itself more efficient and hence easier to do business with,” according to the repeated mantra.
However, there was more than a little delicious irony in McCarthy’s references to former prime minister Harold Macmillan. These were done on the basis of his time as chancellor of the exchequer and his dictum that the hardest thing to predict was the recent past.
Hopefully McCarthy is not also seeking to emulate Macmillan’s ‘night of the long knives’, so-called because of his abrupt dismissal of six cabinet members. It is also worth remembering that under Macmillan’s watch former French president De Gaulle vetoed initial UK attempts to join what was to become the European Union - which, of course now effectively sets the path for future FSA activities.
Another area of more recent selective history put forward by McCarthy was in his references to the current strength of the banking and life assurance sectors.
“The banking sector is thriving, with British banks showing high returns on equity, and capital ratios healthily above any required by regulation. The life companies, which suffered from their exposure to equity markets when the FTSE halved, have benefited both from the recovery in equity markets and from the rebalancing of their assets. The realistic reporting of assets and liabilities, which we have required, shows significant improvement in their underlying financial strength,” the speech stated.
Quite what the average small business owner in the UK thinks about the ‘thriving’ banking sector is highly likely to be unrepeatable in print, while the ability of life companies to survive may in no small part be down to a certain ‘Dear CEO’ letter sent out by the FSA itself on 11 March 2003, offering to “waive” rules on realistic reporting. The FTSE 100 index bottomed out on 12 March that year at 3,287, before rebounding more than 6% on the 13th.
McCarthy also puts forward as a key theme of his speech the idea that it should be possible for companies to make profits while at the same time serving customers well in terms of confidence and consumer protection.
This might also be termed ‘having one’s cake and eating it’ - like saying companies can make profits if they save the environment.
It may be possible for some, but, as noted on repeated occasions by both product providers and intermediaries FSA regulation in the area of retail financial services is creating challenges to companies’ ability to maintain profitable operations.This is actually acknowledged by McCarthy when he says “much less emphasis can be placed on the principle of caveat emptor” in retail services compared with wholesale services. He furthermore acknowledges that the FSA is “acutely aware of of the costs imposed on the sector by regulation and its consequences for industry and consumers.”
So, just how will the FSA square that circle? McCarthy does not say. His key themes for the future are terrorism and increasing cross-border trading in financial services, and the possibility that new regulation will, if anything take even longer to bring to fruition as more parties become involved in the horse trading.
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Jonathan Boyd on 020 7484 9769 or email [email protected].IFAonline
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