After FSA director-general Hector Sants and chairman Lord Adair Turner admitted in front of the parliamentary Treasury Select Committee that pre-credit crunch regulation was underpinned by a flawed philosophy, the writing was on the wall for principles-based regulation.
Brokers always complained that the philosophy was vague. The principle was fine but unfortunately it didn’t work in practice. Yes, the FSA is cracking the whip, finally banning brokers or firms that fail to make the grade, but the fact is that after four years of regulation it’s only just getting started. Too little, too late.
While there’s no denying the FSA has improved the mortgage broking sector and removed a large number of bad eggs stinking out the industry, many still look back fondly to the days of self-regulation and the Mortgage Code Compliance Board.
The MCCB visited brokers every year, improved standards and was active in the market. By contrast, it took the FSA four years to undertake a targeted campaign of visiting every broker.
Despite the fanfare that heralded statutory regulation in 2004 FSA control was less invasive than self-regulation by the MCCB. This should never have been the case.
Sants says the FSA intends to frighten those who fail to toe the line, and about time too. For too long the regulator has been a faceless bureaucrat hiding behind opaque legalese.
It must now be clear about what it expects from the financial services industry and act swiftly when firms are found wanting.