Emerald Group Publishing Limited
Copyright © 2008, Emerald Group Publishing Limited
Article Type: Editorial From: Journal of Financial Crime, Volume 15, Issue 3
Here, we go again!
There was a time when the way things were dealt within the City of London was the envy of the world. Of course, there are those who contend that the city was very good at covering up and forgetting its failures in preventing fraud and abuse. Indeed, there were different standards! Until comparatively, recently it was possible to find senior people in the institutions, including some in those with regulatory responsibilities, who could not see there is anything particularly wrong with insider dealing. Conflicts of interest were a way of life – and as for money laundering – particularly, if it involved merely exchange control or tax issues, was good business! None the less, whether justified in fact, or not, there was a perception that the city bodies, such as the Bank of England and the panel on takeovers and mergers ran a pretty effective and efficient operation. Of course, as things changed in the city – and generally speaking things became rather more international and perhaps legalistic, the old ways became redundant. It is perhaps surprising given the remarkable recent history of regulation and in particular supervision over the financial sector, our system has until very recently been highly respected around the world. Since the early 1980s, there has been a plethora of regulatory bodies, with different responsibilities and powers. Indeed, when the Securities and Investments Board was established, senior officials boasted that they did not have any lawyers or were not really there to enforce the law! It has all been amateurish and in parts self-interestedly incompetent.
Given the way we do things in Britain, it is not surprising that so few meaningful expressions of concern have been voiced. There is a “mafia” – and it may be that the old boys club in the Bank of England has been taken over by the senior common room at the LSE, but the reality is that at the very top of our regulatory system, things have not really changed. Indeed, rumour has it that they are now busy setting up an institute of regulation (The International Centre for Financial Regulation) to export our expertise on financial regulation around the world! Of course, as individuals many of these people are highly competent – but in specific areas and frankly, too easy to listen to socio-economic mumbo jumbo. Over the last three or so years, at the international level, there is a change in the way we are regarded. There is a view in many specialist areas – that while we certainly do have the practical expertise in the city, it is not shared with the regulators. While it is perhaps unfair to focus on one issue, the fiasco of Northern Rock, it has in the words of the Chairman of the Treasury Select Committee of the House of Commons, Mr John McFall MP, exhibited not “just a failure of the supervisors … (but) … a failure of the management of the Financial Services Authority”. It has been accepted by commentators and the FSA that its supervision over the Northern Rock was unacceptable. Many would go a lot further and describe it as wantonly incompetent. The FSA has, of course, made the point that no system is fail safe and everyone acted with integrity. However, the result is not acceptable and in many other circumstances those at the top would be considering their positions. While it may be right to point to the high turnover of staff and the lack of specialised expertise available to the authority, these are failures of management and perhaps approach.
If the problems were confined to one, albeit a vitally important function, the situation might be curable. The problem is that high turnover of staff, lack of convincing and demonstrable expertise and increasingly a malaise may be perceived in many other functions. The days when appearance carried the day – have long gone. It is increasingly being noticed. For example, Islamic financial issues are supposed to be a high priority, for a number of reasons in both the city and treasury, yet last year at three important meetings of the Islamic Financial Services Board, one with IOSCO, the FSA managed to send a different person to each meeting. While those who attended seemed to have some grasp of the issues, the same has not been true of other meetings on important issues. There is an increasing perception at the international level, in the minds of many overseas regulators that things are not as they should be in the FSA. It would be possible to chronicle much, but perhaps, given the FSA’s own admission that things are not as they should be, unhelpful.
Nothing that has been said is in any way intended to impugn the integrity and dedication of the vast majority of staff in the authority. Indeed, many feel let down. It is not without interest that the FSA’s former head of anti-insider dealing enforcement, Mr Carlos Conceicao, now a partner with Clifford chance is reported as observing, in regard to the upper levels of the authority “… there is a strong tension between the time available for downward supervision of the work of your department and the focus that you need to give to organisation issues” (Financial Times, 27 March 2008). There are many rank and filers who feel somewhat “betrayed”. Of course, there are other recent precedents such as the ill-fated Asset Recovery Agency – and rumour has it things are not well within SOCA itself. The issues are not complex physics, but pretty basic management. It is sad we do not seem to be able to deliver.