Today, we turn a new page on this blog, as we have our first guest blogger take the reins and give their views on the issue of the day.  This is a new feature and other bloggers are lined up.  I know many of you want to run your own blog site but don’t have the time to do it…hence posting articles gives you the same kind of thrill and exposure. Bloggers don’t have to share my views, (and yes, Socialists are lined up to post as well).  This site is about debate and discussion not smears and gossip!  Let me know if you want to gain exposure by emailing me at:  grassroots@trueblueblood.com 

John Laity shared some great insights last week into Afghanistan in the comments thread, which we turned into a main blog article, that John Redwood shared with his vast blog community.  So over to John for his first entry.  Sincere thanks John.

The FSA, Wheelie bins and Cowboy Builders…
 
Unlike some countries, England has no separate administrative or constitutional court exercising a broad jurisdiction, though it has two specialised courts, the restrictive practices court and the Employment Appeal Tribunal.
 
This means that the role of Regulators (Such as the FSA) is an “administrative process”, where a relevant Act of Parliament establishes independent sector-specific regulatory offices.
 
Administrative process is a way of handling multiple issues outside of the courts. For example, Town Planning offices and Local Authorities can make local decisions and handle the application of rules and regulations, without having to involve the Courts. They are empowered to do so under an Act of Parliament that grants them the powers they need to apply within a strict framework.
 
Where administrative process is applied there is (usually) clear routes for appeal against a decision and decisions are usually only over-turned should the rules of “Natural Justice” seem to be breached…I.E. Wrong doing of some kind!
 
As administrative process is empowered by an Act of Parliament, a regulator is answerable to a Minister for State, who (usually) will control funding for the Regulatory Office and be able to over-rule any decision made by the office.
 
It is under administrative process that Local Authorities can ask you to pay for rubbish collection or refuse your building project. It is under administrative process that local Trading standards can prosecute a cowboy builder for not finishing your building project. It is also under administrative process the that FSA can regulate the banking sector:
 
From the Commons Select Committee on Regulators, First Report:
 
“In May 1997, the government announced its intention to create the Financial Services Authority (FSA) as a single financial services regulator, independent of government, responsible for both financial services prudential regulation and the conduct of business regulation. The regulator’s duties and powers were set out in the Financial Services and Markets Act (FSMA) which came into force in 2001.
 
The FSA does not have a duty to promote competition in the industry nor to regulate prices since the regulated companies already operate in competitive markets. However, the regulator is required to meet its statutory objectives in ways consistent with facilitating and maintaining competition (internationally and domestically) and minimising adverse effects on competition from regulation.
 
August and September 2007 brought a liquidity crisis at Northern Rock, which ultimately led to the first run on a bank in Britain since 1866.

Inevitably, the Northern Rock crisis casts a new light, and indeed casts doubt, on the claims of financial regulators to prioritise effectively their supervisory activities, especially for such major financial institutions as Northern Rock. It also raises questions of the effectiveness of joint working between the FSA, HM Treasury and the Bank of England.” 
 
Obviously we all have concerns as to how the money markets went into la la land. But can it be blamed entirely on the FSA? Consider the statements made by the House of Commons Treasury Committee, Sixth Special Report of Session 2008–09:

“There is an existing formal statutory link between the FSA and the Bank of England at Deputy Governor level, in relation to the two institutions’ work on financial stability. In November 1997, the Treasury, the Bank of England and the FSA entered into a Memorandum of Understanding which created a framework for co-operation between the parties on Financial Stability. As part of that document, provision was made for the Deputy Governor (Financial Stability) to be a member of the FSA Board and for the Chairman of the FSA to sit on the Court of the Bank of England.”

So it can’t be avoided that the structure of the FSA and its relationship to the Bank of England isn’t working. Does that mean the FSA should go?

The problem for Regulators is that the administrative process they operate within restricts their operations on a day-to-day basis. To overcome this, the FSA operate under a system that uses principles-based regulation to try and keep pace with a fast moving sector.

Principle based regulation is a good idea to promote best practice and limit bureaucracy. However, it relies on the players in the market having a vested interest in making the market work well for all. Unfortunately, such regulation only works well when there is a real engagement by all concerned.

From the Commons Select Committee on Regulators, First Report:

“We recognise the dissatisfaction of many Independent Financial Advisers (IFAs) with the work of the FSA. We welcome moves by the FSA to improve relations with the large number of smaller firms that it regulates. The FSA must continue to cultivate these relationships.”

My Grandfather once told me that “a man can be valued by his principles”. Now I am older, I think also means “Some people’s principles can be bought”…
We all now face increased taxation until we die, because of the failure of the money markets and the principles that regulated them. This the not the fault of the FSA, it is simply the fact that the administrative process wasn’t up to the job of regulating a unique market…A process enacted by Parliament…

Scrap it, rename it, consume it within the Bank of England…It doesn’t really matter. What matters is what powers we enact to prevent future erosion’s of our principles and also the flexibility of the processes to accommodate market change.

The Conservatives have grasped this issue by the thorns and have a strategy for change. If we do nothing we may recover from the recession, only to face the same issues of failed principles in the future.

John Laity