What next for the FSA?

It is always worrying when the CEO of a regulatory body announces he has had
enough and is heading back to private practice. This is especially true when the
CEO concerned has been swimming against the tide of his organisation.

What is of interest is that the change at the top gives us all a chance to
pause and look again at how far the FSA has come and where it is heading.

On 6 February, the FSA published its
Business Plan for 2007/08 ,
setting out its priorities for the coming year. Top of the agenda is the FSA’s
determination to move to what it calls a more principles-based regulatory
approach, for which it suggests the acronym MPBR.

In his tenure, Tiner has been working hard to dump what he argues are
superfluous regulations and a move to MPBR offers a great chance to slim down,
instead of to continually inflate, the FSA’s rulebook. In principle, with MPBR
everything can be checked by reference to the spirit of the guiding principles
concerned, whether they be fairness to the consumer, more transparency, or
whatever.

The thinking here is that you don’t need a 1,000-page description of a camel
because everyone knows the beast when they see it. The problem, of course, with
MPBR is that as soon as a substantive matter arises and lawyers move centre
stage, everything rapidly starts to drown in a welter of conflicting
interpretations. As soon as this happens people row backwards at great speed
looking for something solid, like a rulebook, on which to base their arguments.

Russell Collins, a partner at Deloitte, has known John Tiner for years and
applauds what he has achieved at the FSA. “John was very much about stopping the
avalanche of new regulations. However, he was a bit hampered by the fact that
the EU has been creating its own avalanche of unignorable, international
regulations aimed at the financial services sector,” he says.

Collins has particular praise for the way in which Tiner, assisted by his
background as an auditor, has been responsible for putting in place a risk-based
approach to regulation, namely the FSA’s Arrow – the Advanced Risk Responsive
Operating FrameWork. He also has great praise for the FSA’s attempt to drive a
higher standard of financial literacy in the UK, from schoolchildren upwards.

After a long career with Arthur Andersen, Tiner, now 49, became head of the
firm’s worldwide financial services industry practice in 1997, before joining
the FSA in 2001 as MD of the consumer, investment and insurance directorate. In
a post-Higgs world he was chosen in 2003 to succeed Sir Howard Davies as chief
executive while Sir Callum McCarthy took on Davies’s role as chairman.

Right timing
So Collins sees nothing “odd” in Tiner’s decision to leave the FSA for pastures
new. “He has done the CEO/divisional MD job for six years and if he decided to
stay on, with principles-based regulation now requiring to be implemented, that
is not a job for a year or two. It could mean recommitting for another six
years,” he says.

Another point is that, had Tiner delayed until next year, say, the FSA could
have found itself in the uncomfortable position of having to find a new chairman
and a new CEO simultaneously: McCarthy’s five-year contract is up for renewal in
2008.

As to whether Tiner and the FSA have done a good job during his tenure,
Collins points to the results of the latest
Financial
Services Practitioner Panel survey, which came out in December, and can be
viewed on the practitioner panel website by clicking on the link above.

What the latest survey found was that satisfaction ratings with the FSA’s
performance has improved among the wholesale and major groups, but the FSA is
still struggling to get the huge raft of smaller, retail practices onside. The
FSA’s authority has only recently been extended to include firms of mortgage and
general insurance brokers. Not too many of them are finding much to cheer about
from the raft of regulatory and compliance issues now facing them. But it’s a
big constituency for Tiner’s successor to reach out to, and yet another
challenge to take on board.