By GRAHAM BUCK, a London-based writer covering European risk management issues
When Hector Sants announced last week that he will step down this summer after three years as head of the London-based Financial Services
Authority (FSA), the papers devoted much speculation to the significance of his timing.
On the surface the news was unsurprising; according to Sants, when he took over the post in July 2007, he informed the board that he intended to serve only a single term of three years. However, the fact that he appears to have decided to quit without first lining up another job suggests that uncertainty hanging over the future of the FSA lay behind Sants' decision.
If the current Labour administration is voted out of office after 13 years, an incoming Conservative government led by David Cameron has pledged to scrap the regulator and hand over its supervisory powers to the Bank of England. The creation of the FSA was one of the first acts of Gordon Brown, then chancellor, when Labour came to power in 1997.
The Conservatives claim that, as a watchdog, the FSA has proved toothless and that its weak oversight of the banking sector contributed to the current financial crisis. Indeed, in recent months, Sants has regularly warned that the FSA was about to sharpen up its act and crack down on wrongdoing. But it has been a rocky ride, with the credit crunch biting shortly after he took over and the FSA accused of focusing on a raft of new regulations and failing to see the failure of risk management in the markets it regulated.
The U.K. faces an election by June at the latest (May 6 is the date many believe will be chosen), and the watchdog is unlikely to confirm the name of Sants' successor as chief executive until the voters' choice decides the fate of the FSA.
Two names have been cited as most likely candidates to step up and take on the role of chief if the authority manages to survive. One is Sally Dewar, who joined the FSA eight years ago from the London Stock Exchange and is currently the watchdog's managing director for risk. The other is its managing director for supervision, Jon Pain.
Analysts suggest, however, that the regulator now has every appearance of a lame duck and that few are likely to be interested in taking over the job.
All this could leave the U.K. insurance industry in suspense as to the future direction of its regulation.
"This is not the environment in which the future of financial services regulation can be left hanging in the balance for months. It risks sowing too much confusion," commented Jonathan Davies, a regulatory lawyer at the London firm of Reynolds Porter Chamberlain. "The insurance industry needs a period of regulatory stability, and this isn't going to help."
As for Sants, who was formerly an investment banker, speculation is that he could head back to the private sector but might also turn up as a minister in a future Conservative administration. He is apparently admired both by Cameron and his deputy, shadow chancellor George Osborne, despite their animosity towards the FSA itself.
One of his parting gifts was a sharp hike in the fee that general insurance brokers pay to the regulator. It goes up by 122 percent, from an admittedly low figure of £450 ($690) to £1,000 ($1,563), to contribute toward a rise of almost 10 percent to £455m ($711.5 million) in the funding requirement of the FSA, one of the few U.K. organizations to have taken on more staff last year.
February 16, 2010
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