Call to sack FSA chief now

Lord Turner, chairman of the Financial Services Authority should be sacked on the spot for floating the idea of a tax on City of London transactions, says UKIP Leader Nigel Farage.

Mr Farage, who spent 20 years as a City commodities trader said: "Lord Turner must go.

"As head of the City's regulating body, he has just suggested a move that would guarantee the collapse of our country's most vital services industry.

"What is he on?

"If the Tobin tax, a tax on every speculative transaction, was the answer to our economic problems then it would have taken hold when first mooted 30 years ago.

"The fact that it didn't proves it's another purely academic fantasy that has no place in the real world.

"The chancellor, Alistair Darling, should bite the bullet and admit that Lord Turner's appointment as head of the FSA was a mistake and that his position is no longer tenable.

"For the good of the City and of Britain's biggest industry, Lord Turner must go."

Osborne accuses the FSA of "pulling its punches" on bank bonuses

George Osborne has attacked the Financial Services Authority’s new rules on how financial institutions should determine pay and bonuses.

The Shadow Chancellor said the FSA had “pulled its punches, leaving the promises of the Prime Minister and others to curb excessive bonuses absolutely worthless.”

He stressed, “Banks need to be told that the support provided by the tax payer is there to rebuild their balance sheets and resume normal lending; it is not there to help with mega payouts to bankers.”

“This failure to act is further evidence of the need to put an institution with the clout and authority of the Bank of England in charge, and that is what a Conservative Government will do.”

Redress, politics and proposals

Now that the government and the opposition parties have set out their policies on financial reform, we know what each would do with the financial regulatory system. But so far as the ombudsman service is concerned, the news seems to be 'no change' – with no one proposing to tamper with our role.

The Conservatives say that the ombudsman service plays an important role in consumer protection, as it provides a means of resolving consumer disputes. They see the ombudsman working closely with their proposed Consumer Protection Agency – which would take over the consumer functions of the Financial Services Authority (FSA) and the consumer-credit responsibilities of the Office of Fair Trading (OFT). The Lib-Dems have made it clear they have no interest in institutional reform – so presumably that means no change for us.

But it’s the government’s proposals for ‘collective redress’ that present the most interest for those of us concerned with complaints and redress in areas where there has been widespread consumer detriment in recent years.

The government's proposals say:

Where many consumers are affected in a similar way, there should be routes to collective redress that can deal with claims more efficiently, reduce the time that claimants may have to wait, and reduce the volume of individual cases dealt with by the courts or the Financial Ombudsman Service.

This would mean enhanced powers for the FSA and a right of collective action in the courts. These proposals echo thoughts I outlined in our most recent annual review.

So I’m looking forward to a busy and interesting final few months as chief ombudsman – watching some of these proposals take shape before I step down at the end of October.

Walter Merricks
chief ombudsman

Osborne launches white paper on financial regulation

George Osborne has set out plans to abolish the failed tripartite system of regulation and give the Bank of England responsibility for maintaining financial stability.

At a speech in the Bloomberg offices, the Shadow Chancellor said the regulation system set up by Gordon Brown had failed.

And he launched a white paper on financial regulation, entitled ‘From crisis to confidence: Plan for sound banking’.

The document explains how a Conservative Government will create a strong regulatory framework, as an essential component of a sustained economic recovery. We will:

• Abolish the Financial Services Authority (FSA) and the Tripartite regime it operated with the Bank of England and the Treasury
• Create a strong and powerful Bank of England with the authority and powers necessary to ensure financial stability
• Create a powerful Consumer Protection Agency that will bring together in one place the consumer powers currently split between the old FSA and the Office of Fair Trading
• Demand that banks set aside much more of their own money for their risky lending as a form of insurance policy
• Appoint a Treasury Minister with special responsibility for fighting our corner in Brussels so that European regulations are right for the City of London
• Ask the Office of Fair Trading and the Competition Commission to conduct a focused examination of the effects of consolidation in the retail banking sector.

At the launch, David Cameron said, "The decisions that led to (the banking) crisis represent a policy failure of historic proportions. We now need deep, wide-ranging reform that matches both the magnitude of the crisis and the scale of the hardship inflicted on the British public."

George stressed, "If we can bring stability to our banking system, and reward long-term returns over short term bonus chasing, then we will have put in place a key foundation stone of an economic recovery."

Foster: Bank watchdogs paid £25m in bonus bonanza

Mon, 01 Jun 2009

Government regulators paid out £25m in bonuses to staff last year despite serious problems in many of the areas they regulate. £5½m of the bonuses went to executives earning over £100,000, according to figures revealed to the Liberal Democrats.

Figures released under the Freedom of Information Act show that:

• The FSA paid £19.7m in bonuses to staff last year, with £4m of that going to executives earning over £100,000 - despite the bank crisis
• Ofcom paid its execs an average bonus of £16,667 - despite failing to prevent thousands of consumers losing money in the TV quiz phone-in scandal
• Ofgem paid its execs an average bonus of £15,250 each - despite large increases in gas and electricity prices
• The top bonus paid out at the FSA was £90,000 - the highest paid at Ofcom was £56,400
• The average bonus paid to regulator executives was £19,100 - the average for other staff was £4,107

Commenting Liberal Democrat Shadow Culture, Media and Sport Secretary, Don Foster said:

"We all accept the need to attract top-quality workers to the public sector but in some cases it appears these bonuses have been paid out despite serious failings."

"This government offered hard working teachers and nurses below inflation pay deals while doing nothing to curb regulator executives earning five figure bonuses."

"The size of some of these pay outs would be hard to justify at the best of times, but it looks especially bad in the current economic climate."

"Regulators must now follow the lead of those in the rest of the public sector who have promised to freeze executive pay."

Table 1: Breakdown of bonuses for the Financial Services Authority, Ofcom, Ofgem, The Pensions Regulator, Ofwat, the Office of Fair Trading, Postcomm, the Civil Aviation Authority, and the Office of Rail Regulation.

Regulator	Number of Staff	Amount paid in bonuses to staff in total	Average staff bonus	Number of Employees on salaries over £100,000	Proportion of total staff earning over £100,000	Amount paid in bonuses to staff on salaries over £100,000	Average bonus paid to saff on salaries over £100,000	Highest bonus paid
TPR	328	£321,531	£980	12	4%	£76,577	£6,381	£28,512
Ofcom	810	£1,974,280	£2,437	48	6%	£800,000	£16,667	£56,400
Ofgem	302	£404,199	£1,338	10	3%	£152,500	£15,250
Ofwat	193	£55,000	£285	4	2%	£30,000	£7,500	£20,000
OFT	700	£564,418	£806	11	2%	£77,107	£7,010	£16,414
Postcomm	>66	£175,167	£2,654	1	2%	£8,246	£8,246
CAA	962	£1,797,211	£1,868	24	2%	£430,170	£17,924
ORR	345	£449,787	£1,304	6	2%	£55,000	£9,167
FSA	2,489	£19,700,000	£7,915	174	7%	£3,912,380	£22,485	£90,000
Total	6195	£25,441,593	£4,107	290	5%	£5,541,980	£19,110

Source: All information was received from Freedom of Information responses.

Nothing Fancy just Good Financial Information

Living on a low income, keeping loans under control and financial abuse are just three of the issues covered by a recession busting leaflet launched today by YWCA (www.ywca.org.uk). The guide is aimed at young women and features tips on saving money, low budget shopping and cutting costs.

The charity is concerned that women living on low incomes are currently finding it even more difficult to balance their limited weekly income. It believes they are getting into even greater financial difficulties.

“The women we work with have very limited incomes” says Sarah Payne, Chief Executive YWCA. “Within this leaflet we provide key pieces of financial information which, we hope, will help these women manage their very limited resources better.”

“In the current economic climate everyone is worried about money. But young women in some of the poorest communities are particularly vulnerable. They tend to be on low incomes and sometimes lack the skills to manage their limited funds” Sarah continues. “Young mothers and teenage girls, who have had to leave unhappy homes, can find themselves suddenly living independently with little or no support. They find themselves in charge of household bills, with responsibilities that they’ve never had to think about before. We hope this leaflet will help them and also highlight that YWCA is here to support them”.

Women are often in work that pays so badly they experience ‘in-work poverty’. Nearly two thirds of low paid workers are women. Sectors with the highest proportions of minimum-wage jobs are female dominated. For example retail, hospitality, social care, hairdressing and cleaning.

According to the Trade Union Conference (TUC) it is likely that women’s jobs will be affected more than in past recessions. More women have been made redundant since the beginning of 2008 than men. [TUC (2009) Women and Recession: How will this recession affect women at work?]

In times when money is scarce women on low incomes are more vulnerable to credit and store card offers, especially if they have young children. Often they do not realise the expensive interest charges they will incur if they do not pay off their account each month.

Linda Jack, Youth Policy Adviser at the Financial Service Authority (FSA) says “I welcome this excellent and timely initiative from YWCA. The young women they work with are likely to be disproportionally affected by the credit crunch and will need as much support as possible to be able to effectively manage their money. This leaflet, alongside the outstanding support YWCA centres already offer to so many young women, will be a lifeline for those struggling to make ends meet and make the most of their money.”

Some women attending YWCA centres have talked about boyfriends, having lost their jobs, taking money from them without asking and not paying them back or using their credit cards without permission – in some cases a form of financial abuse which is putting them in debt. The leaflet therefore looks at this issue and suggests ways to avoid falling into this trap.

Spelman condemns loss of £200 million of local taxpayers' money

Caroline Spelman, the Shadow Communities and Local Government Secretary, has stressed it is “unacceptable” that local taxpayers will lose £200 million as a result of the Icelandic banking meltdown.

She warned that the loss will “ultimately feed through to higher council tax or less investment in frontline services.”

And she condemned the series of regulatory failures that led to town halls investing almost £1 billion of local taxpayers’ money in Icelandic banks:

• Ministers and the Financial Services Authority knew the risks but said nothing - the FSA knew about the risks in Icelandic banks at the beginning of 2008 and informed both the Treasury and the Bank of England, but failed to inform the Department for Communities and Local Government and the Audit Commission
• Audit Commission inaction - the Audit Commission has admitted that it did not consider it their job to provide any advice to local authorities on investments and that they failed to liaise with the Financial Services Authority
• Prescott ’s town hall guidance - The Government’s guidance to local authorities (originally issued in 2004 by John Prescott) relies overly on credit ratings, rather than also obtaining professional treasury management advice

Caroline said, “It is a scandal that the Financial Services Authority and the Treasury knew that Icelandic banks were risky, but sat on their hands and kept quiet. Labour Ministers must take personal responsibility for this public policy mistake, given they created a flawed regulatory system and said nothing.”

(HMT) Dunfermline Building Society

The Chancellor of the Exchequer and the Governor of the Bank of England have today announced a resolution for the Dunfermline Building Society that protects depositors, and provides a more stable and secure future for the society's members.

It is business as usual for all customers. Dunfermline's deposit business will continue to operate normally. Branches and telephone banking will continue to open during their normal hours and customers can deposit and withdraw their money in the usual ways. Savers can be assured that their money is safe. Loan and mortgage customers can continue to contact Dunfermline in the usual way and should continue to make repayments as normal. All of Dunfermline's staff have been transferred to Nationwide.

Under the Banking Act 2009, Dunfermline's retail and wholesale deposits, branches, head office and originated residential mortgages (other than social housing loans and related deposits) have been transferred to Nationwide. This follows a competitive process conducted by the Bank of England over the weekend of 28-29 March under the Special Resolution Regime provisions of the Banking Act 2009.

Dunfermline's social housing portfolio has been placed into a bridge bank, wholly owned by the Bank of England. This will allow the Bank of England and the Treasury to determine the best outcome for this part of Dunfermline's business and underlines the Government's commitment to maintaining the availability of lending to Registered Social Landlords.
The Government is talking to a number of people, including the Scottish Government, about securing a long-term future for the social housing book.
A court order was made earlier today to place the remainder of Dunfermline's business into the Building Society Special Administration Process (BSSAP) and to appoint KPMG as the administrator. This part of the business includes commercial loans, acquired residential mortgages, subordinated debt and most treasury assets.

When considering the appropriate action to take, the Treasury took account of the scale of future losses faced by the society, the additional capital that would be required, and its very limited capacity to service new capital given its historically low level of profitability. It concluded that an injection of funds by the taxpayer would not be likely to provide value for money and would not provide a sustainable and lasting solution to the problems faced by the society

On 28 March 2009, following the required consultation with the Treasury and the Bank of England, the Financial Services Authority (FSA) found that the general conditions for entry into the Banking Act Special Resolution Regime were satisfied in the case of Dunfermline Building Society. The Bank of England, having consulted the FSA and Treasury, considered the overall package offered by Nationwide to best meet the objectives of the Special Resolution Regime and the Treasury provided consent for the use of public money.

Today's announcement also demonstrates the Government's support for the wider mutuals sector and the important role that mutuals play in communities throughout the country.

The FSA publishes "The Turner Review": a wide-ranging review of global banking regulation

The Financial Services Authority (FSA) has today published the Turner Review of global banking regulation. Lord Turner, chairman of the FSA, was asked by the Chancellor of the Exchequer to review the events that led to the financial crisis and to recommend reforms.

The Review identifies three underlying causes of the crisis – macro-economic imbalances, financial innovation of little social value and important deficiencies in key bank capital and liquidity regulations. These were underpinned by an exaggerated faith in rational and self-correcting markets.

It stresses the importance of regulation and supervision being based on a system-wide "macro-prudential" approach rather than focussing solely on specific firms. It recommends:

• Fundamental changes to bank capital and liquidity regulations and to bank published accounts;
• More and higher quality bank capital, with several times as much capital required to support risky trading activity;
• Counter-cyclical capital buffers, building up in good economic times so that they can be drawn on in downturns, and reflected in published account estimates of future potential losses;
• A central role for much tighter regulation of liquidity;
• Regulation of "shadow banking" activities on the basis of economic substance not legal form: increased reporting requirements for unregulated financial institutions such as hedge funds, and regulator powers to extend capital regulation;
• Regulation of Credit Rating Agencies to limit conflicts of interest and inappropriate application of rating techniques;
• National and international action to ensure that remuneration policies are designed to discourage excessive risk-taking;
• Major changes in the FSA’s supervisory approach, building on the existing Supervisory Enhancement Programme (SEP), with a focus on business strategies and system wide risks, rather than internal processes and structures; and
• Major reforms in the regulation of the European banking market, combining a new European regulatory authority and increased national powers to constrain risky cross-border activity.

The Turner Review distinguishes between those areas where the FSA has already taken action, those where the FSA can proceed nationally, and those where international agreement needs to be achieved. It also recognises that there may be alternative specific ways to achieve the essential objectives of effective regulation.

In addition the Review highlights areas where it is premature to recommend specific action, but where wide-ranging options need to be debated. These include product regulation in retail (e.g. mortgage) and wholesale (e.g. CDS) markets.

Lord Turner said:

"The financial crisis has challenged the intellectual assumptions on which previous regulatory approaches were largely built, and in particular the theory of rational and self-correcting markets. Much financial innovation has proved of little value, and market discipline of individual bank strategies has often proved ineffective.

"A global market economy remains the best means of delivering global prosperity: it requires a global banking system focussed on serving the needs of businesses and households, not in taking risks for quick return. Major changes in regulation and in supervisory approach are required to deliver that. The approach has to build on a system-wide perspective: failure to look at the big picture was far more important to the origins of the crisis than any specific failures in supervising individual firms. And it must reflect the reality of a global financial system without a global government; we need both far more intense international cooperation and greater use of national powers.

"The changes recommended are profound, and the banking system of the future will be different from that of the last decade. The world’s economy will be better served as a result."

Lord Turner warns that the transition to higher bank capital will need to be managed carefully. UK banks are now capitalised at a level which will enable them to absorb severe stresses, and the short-term priority is to maintain bank lending to the real economy.

Published alongside the Review is an FSA discussion paper (DP) which sets out more detail on specific policy proposals. As the current crisis arose in the banking, investment banking and "shadow banking" sectors, most of these proposals focus on these sectors. Possible implications for some other sectors are however identified.

FSA: Another Broken Government Legacy

It is time to lay into the FSA, the Financial Services Authority, the financial services watchdog. I watched Chairman Lord Turner and Chief Executive Hector Sants answering questions by the Treasury Committee today and as I did, my blood started to boil. Turner stated that the reason that half of the banks in the UK under his watch had gone out of business was because of "political assumptions" that were made by the FSA to use a "light touch" approach to its job of regulating the banks.

The first thing that made me angry was that this organisation which was set up by the current Labour government was in some way it appeared trying to blame its architect instead of taking responsibility for its lack of appropriate activity. The inference that can be taken from these "political assumptions" is that they could only have been constructed from hints and suggestions made directly by the government. This may be the case but the FSA is supposed to be an independent body. It says so on its own website (http://www.fsa.gov.uk/Pages/About/Who/index.shtml). This means that it should not be making assumptions based on politics at all. To do so is to undermine its very existence.

The second thing that upset me was the fact that these two managers, under whose watch we have lost half of our top ten big retail banks think that it is acceptable that they should be allowed to announce plans to close the stable door after the horse has bolted. They have admitted that the FSA is not fit for purpose but that it can be if some changes are made. What the bloody hell have these people been doing for the last however-many-years that they've been in charge? How is it that now, when the heat is on, they can suddenly come up with ideas in a couple of months or even weeks perhaps that can fix everything? If they have come up with a viable plan to fix the FSA then why didn't they do it before the system broke?

The FSA has failed three of its four statutory objectives of late and the two people in charge need to go. They won't! Neither will they resign nor will they be sacked. Why? Firstly because if they're sacked then the government will have to admit that their regulatory framework has failed. That's never going to happen with Gordon Brown in power. If they resign, they will be out of a cushy number which pays a great salary, wonderful pension, flexible working environment and oh yes....a bonus. Lets just remember what the government has said so robustly about rewarding failure before we remember that these individuals will undoubtedly get a nice bonus at the expense of the tax payer. Not a bad deal if you can also manage to reduce your responsibility by 50% whilst on the job...is it?

Government Betrays Public Over Banking, Just Like That!

I just saw a report on BBC News 24 that claimed that the government is pushing ahead with new legislation that will allow the Bank of England and FSA to move quicker if banks get themselves into trouble to bail them out...Hoorah! The new legislation will also help consumers to access their money quicker if things go belly-up...Hoorah!

I cannot find much on the web about this yet but there are two things that really worried me about this proposed legislation. The first is that it allows for an assumption that it doesn't seem to be possible or desirable for the government to regulate and monitor the banks closely enough to prevent them from getting into trouble again, thus eliminating the risk of institutional or systemic failure altogether.

Secondly, because the legislation will allow the regulators to react to trouble in secrecy, without the gaze and scrutiny of the public, we are not going to know what's happening in the financial services industry at all until presumably well after the event. This would remove any remaining shred of transparency in the banking system and would ultimately remove any control we have over our own money. One could also draw the inference that the government is of the opinion that it is in fact a panicky public that caused the banking crisis rather than poorly regulated bankers who were allowed to play recklessly with investors money.

So...in a cynical attempt to be seen to be doing something constructive to re-regulate the banks, the government has shown its disregard and trust in the British public by inadvertently blaming them for the downfall of the banks and barring them from full and timely information. They are also it appears going beyond their power by removing the choice and control the public has over its money and where they put it by allowing the regulators to act in secrecy. Call me crazy...but that really makes me angry! When will this madness end?