What’s going on inside the FSA? | FT Alphaville

What’s going on inside the FSA?

Well, this is worrying. When even Britain’s Financial Services Authority acknowledges its own personnel problems, it must be serious.

From a memorandum the FSA recently sent to the Treasury Select Committee, on the subject of breaking it up into two new regulators:

People retention risk: the uncertainty created by moving to the new structure for individuals is undoubtedly posing retention and recruitment problems.

De-merger process: in addition to the people retention risk it should be recognised that the actual activity of identifying and matching approximately 4000 staff to new roles for the new agencies is complex and potentially disruptive.

Personnel stretch and its impact on ability of the FSA to discharge its Financial Services and Markets Act (FSMA) obligations: the requirement to manage the transition places considerable pressures which self evidently reduces management and staff time available for discharging the statutory obligations of the FSA…

Undoubtedly posing problems. Potentially disruptive. Considerable pressures. Doesn’t sound good, does it?

The background here is that the FSA will split into a Bank of England-led Prudential Regulatory Authority, plus a new Consumer Protection and Markets Authority. This will be completed by 2012 although a ‘shadow structure’ will operate inside the FSA from next year, which seems to be stressing out managers and staff.

And we should be worrying for two reasons.

First, we can only guess how this is affecting the FSA’s work — y’know, that whole financial stability thing — right now. FT Alphaville has long observed the agency’s curious post-crisis admixture of tougher regs and dozy application of them, often to completely the wrong targets. Then there are signs of slowdown in even routine regulatory practices.

Of course, not everyone agrees with us — here’s a good new paper from Eilís Ferran, a company and securities law professor at Cambridge, who argues that the FSA did at least build up a lot of experience in regulatory judgement-making that’s at risk of dissipating in the new order.

Which leads to the second reason to worry. There are a lot of questions over where regulation of many of the City’s more technical parts will be housed under the new regime. We’ve noted auditors before, though the oversight given to insurers and asset managers is tackled in a comment from Aviva to the Select Committee as well. Can all that be sorted out if staffing issues are a problem?

We have a bad feeling about this.

Related links:
FSA reform threatens influence in Brussels – FT
Editors’ letter to the FSA – FT
Wasteful, useless (UK) regulation, Part 93 – FT Alphaville