· Proposed Financial Conduct Authority (FCA) should be abolished
· Executives and auditors should be prosecuted for malpractice
· Watchdogs should boost competition, not box-ticking
In a report today (Friday) the Adam Smith Institute says that George Osborne’s plans to replace the Financial Services Authority – discredited over its mishandling of the banking crisis – will make things even worse, increasing bureaucracy and cost on Britain’s key financial-services sector.
The FCA & PRA
Osborne’s Financial Conduct Authority (FCA) for consumer protection and Prudential Regulatory Authority (PRA) for supervision will overlap and conflict. They will do nothing to promote competition. And they seem likely to adopt the box-ticking culture instead of setting clear rules and punishing offenders.
The FCA is pointless and should go. The Financial Ombudsman Service (FOS) provides better consumer protection. The FOS can protect consumers perfectly well without another regulator second-guessing it.
The PRA is conflicted between saving troubled firms and ensuring the health of the market, where occasional failures are inevitable. It should be cut down and become merely the sniffer dog for Bank of England regulators.
Changes to regulation
Regulation would be stronger if made simpler and broader, with regulators setting broad rules and punishing transgressors. Punishing individual executives, rather than firms, would be more effective to guarantee honesty and compliance. Auditors too should be prosecuted when they fail to spot wrongdoing.
The Bank of England must resist regulatory creep from the EU. EU financial regulation must also be enforced equally, not gold-plated in the UK.
Dr Eamonn Butler, co-author of the report ‘Simple Rules for Complex Systems’ with Tim Ambler, says:
“The Financial Services Authority was so busy ticking boxes that it did not even see the 2007/8 bank crisis unfolding. Recently it was so busy ticking boxes that it did not see the LIBOR scandal brewing, despite clear warnings in the financial press. There is no evidence that George Osborne’s new regulators are going to be any different.
“In fact the new regulators will get under each other’s feet and make things worse. Our financial sector is vital, but Osborne’s plan will strangle it. We need more competition and transparency among banks and financial firms, not more bureaucratic regulation. We don’t need endless inquiries, we need clear rules and clear punishments when they are broken”
Notes to editors
· Simple Rules for Complex Systems: Streamlining the UK’s Financial Regulation Regime is a report released by the Adam Smith Institute, the UK’s leading libertarian think tank. You can read the full report at: http://www.adamsmith.org/sites/default/files/research/files/SimpleRulesComplexSystems_ASI.pdf
· Tim Ambler is a senior fellow of the Adam Smith Institute, who co-authored the report with Dr Eamonn Butler, Director of the Adam Smith Institute.