18/06/2010

By Graham Buck

The government’s plans to abolish the Financial Services Authority, announced by the Chancellor George Osborne, has met with a mixed reception.

The new regulations to be introduced should lessen the severity of any future economic crisis, according to Professor Brian Scott-Quinn from Henley Business School at the University of Reading.

Professor Scott-Quinn also welcomed the decision of Hector Sants to stay on as head of the FSA through the reform. “The best news is that the chief executive will remain in place throughout the transition to the new structure. This should make the transition less disruptive,” he said.

The news was also welcomed by Andrew Shrimpton, member – regulation and compliance at Kinetic Partners, who commented: “The abolition of the FSA has come at a critical time for the financial services industry. The challenges facing the new body are both varied and deep – and likely to change over the period of implementation.”

However, while handing regulatory power from the FSA to the Bank of England is “a huge step in the right direction”, it risks leaving financial services companies confused and exposed warns Complinet, information supplier to the industry.

“The FSA had made huge strides to toughen up on malpractice in the past two years since the global recession took hold,” says Alex Robson, managing editor at Complinet. “However, there is a real feeling that if confusion is allowed to reign in the switchover thousands of companies will be struck by inertia.”

Robson says there is a “real danger” of a further crisis within the banking and financial services sector if the lessons learned since the advent of the credit crunch three years are forgotten. “Things were improving under the FSA and that pressure on compliance functions in companies must not be allowed to slip between now and 2012.”

He is also concerned that abolition of the FSA will diminish its status in Europe ahead of the transition and that tough scrutiny over banks, traders and brokers is maintained. “During this transition phase it is more important than ever to make sure compliance officers keep up the pressure on senior managers. Intrusive supervision is here to stay, no matter who does it.”

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