favouring international co-operation to develop regulation of global corporations
Last month, the House of Lords debated the future of London as a financial centre. Regarding London's present position there is no doubt; it is quite simply the most international capital market centre in the world. There are more than 250 foreign banks in London and last year, two-thirds of the initial public offerings in western Europe occurred in London. It is the centre chosen by most international financial services conglomerates as their headquarters in Europe or this timezone and it represents one of the most successful sectors in the British economy.
There are many factors contributing to this: the stable economy, taxation, concentration of skills and - a claim based not on my personal view but on repeated studies of practitioners - the regulatory regime in the UK is seen to be preferable to those elsewhere. The present picture is clearly attractive - but of course transient. As Baroness Valentine said in the debate last week: "We cannot take any of these advantages for granted. The world is changing and we must anticipate and meet those challenges." This is a sentiment the FSA endorses completely.
Any sensible regulator, certainly the FSA, believes the best outcomes for both producer and customer come from efficient markets, not regulation. Therefore, measures working with the market, which the FSA has undertaken, including unbund-ling for asset managers, contract certainty in the insurance market, and reducing confirmation backlogs in credit risk derivatives, are to be expected.
In each of these cases we have encouraged market developments and kept direct regulatory intervention as a backstop. There will be further efforts to discourage market misconduct, including action against market abuse and insider trading. Second, we will continue to guard against regulation impeding competition and innovation.
The FSA has a clean record here, as judged by the competition authorities, and intends to keep this, particularly our policy commitment - not widely shared across the international regulatory community - of treating all firms and institutions within our remit on the same basis, irrespective of the nationality of owners or managers.
Against the background of these elements of continuity, there are a number of challenges to face. The most pressing is the international nature of London as a capital market centre. How do we across the world regulate the international financial institutions, which are becoming of increasing importance, in a way that is not either at best burdensome (because of duplicative regulatory requirements from the various national regulators), and at worst contradictory?
One answer to this, much favoured by some European banks, is simply to establish primacy for the regulator in the country of incorporation of the financial institution (the home regulator), and give that regulator the responsibility for overseeing the financial institution throughout the EU (if a European institution) or throughout the world. This answer is not a solution - however it offers simplicity and certainty. Unfortunately, it fails on most other tests, including legal, practical and political.
In its place, there needs to be a practical and workable answer - one reflecting the varying importance of different financial institutions, legal powers, and the competence and resources of different regulators.
The FSA, which is both an important home and an important host regulator, is much seized of these issues. It has made significant progress in the supervision of major banking groups including UBS, Credit Suisse, HSBC and Standard Chartered, and in establishing regulatory colleges that brings together the most important regulators for an institution to establish shared knowledge and clear regulatory responsibilities.
The FSA's work with the Swiss EBK and the New York Fed on Credit Suisse is an example of this. However, the FSA needs to extend these principles from banking more generally to other financial institutions and the supervision of exchanges is an obvious area of development.
Managing the FSA's emerging responsibilities - both influencing the decisions on what comes to it and efficiently managing whatever does is one of the most important challenges it faces. There is a host of things happening, including implementing MiFID, Solvency II, the Capital Requirements Directive; the evolving policy on fair treatmeant of customers and the changing landscape in the distribution of financial services and products.
Taking the time to look
After 14-month FAS programme
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