Newspaper article The Evening Standard (London, England)

After N2, a Brave New Agenda for the City Watchdog

Newspaper article The Evening Standard (London, England)

After N2, a Brave New Agenda for the City Watchdog

Article excerpt


IT MAY BE little comfort to City firms looking apprehensively at the spiralling costs of compliance in the wake of the Financial Services Authority's assumption of its full powers last Friday to learn that the regulatory caravan has already begun to move on.

Whereas regulators in the United States are thought to do a good job as long as they catch wrongdoers after they have committed offences, the attitude here is rather different.

Politicians and consumers refuse to tolerate any failure and when something - anything - goes wrong the regulator immediately gets pilloried for failing to prevent it.

Perhaps it is because bankruptcy in the US is seen as part of the learning curve for ambitious businessmen whereas here it is a stigma to be carried for life. Either way, the net effect is that society has utterly unrealistic expectations of the degree of safety a regulator can deliver at sensible cost.

The regulator's defence is to seek to anticipate problems and be prepared for as many eventualities as possible. This is why, when the City is still focused on the FSA's assumption of full powers, code-named N2, the FSA itself is beginning to look further ahead. A huge effort continues to make N2 work in practice but the FSA's strategic focus is shifting towards identifying events and trends - physical, social economic or political - that could cause trouble in future. Its argument is simple: if you foresee the possibility of some malign event it is easier to cope with its consequences.

We might all have suggestions as to what such events might be, but top of most lists ought to be the effect of a prolonged bear market.

There is enough anguish around because share prices have fallen back to levels of four years ago.

What would the mood be like if we had a rerun of 1974 when shares went to their lowest for 30 years?

What would happen if the post-September flurry in share prices was as good as it got and equities simply drifted sideways or lower for the next three to five years? …

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