Thursday, March 19, 2009

New Shiny Regulations Lined Up By FSA

I had to have a chuckle today when I read the statement from the FSA Chairman Lord Turner, when he said "We are not going to fall into the trap that we did in the past of trying to get a minor competitive advantage by making regulation a little lighter than elsewhere. The disadvantages of getting it wrong are hugely bigger"

Er.. did I miss something? Lord Turner may believe that regulators have been 'lighter' for his buddies at the big banks and powerful broking companies, but those of us who have been in the trenches for the last 10 years would not describe regulations as 'light'.

Costs have escalated out of control and the richest guy in any small brokerage is the compliance manager.

I suppose this is all good news. For a long time we have said that the banks are too big and out of control, squeezing smaller operators out of business. We recently reiterated our belief that this was, consciously or unconsciously, the will of the regulators. It is easier to manage a few huge companies, n'est pas?

Clearly that strategy has been seen to be a huge.. well.. cock-up.

So what are the solutions being put forward? As we have being saying for a year now, the changes will be stringent for the big banks.

In a reversal of MiFid (and, dare I say the word 'protectionism') Lord Turner said there would be major changes for foreign banks with subsidiaries in the UK. The system of allowing foreigners to "passport" so that branches in Britain are overseen by their home regulator will be curtailed. The FSA could force the local entity to hold a specific level of capital, or may insist it accepts direct FSA regulation, Lord Turner said.

He warned hedge funds that if the FSA believes they are a systemic risk, it will either squeeze the UK-based part of their business, or will put pressure on their offshore domain for information.

If the FSA deems something unacceptably risky in any financial institution, it will force it to hold so much capital that it makes the action prohibitively expensive. The FSA will also pay far more attention to the "macro prudential" big picture risks when looking at individual companies, Lord Turner said.

Basically all the things MiFid was supposed to do, ease cross boarder business etc, will be stripped away. He didn't say it, but I bet that is what happens.

So we enter another round of regulatory upheaval which, if it was to be aimed solely at the banks, would be a timely and well-needed thing. Only problem is, and you and I both know it, that these regulatory changes will impact everyone in our business.

No doubt we will see a hastily crafted and badly timed new set of regulations rushed through with the merest splattering of feedback from those it will affect down the financial food chain.

I am sorry to be so cynical, but when regulators start talking tough, you just know there going to be massive cost involved for those who never caused the problems in the first place.

Oh... and who gets to decide whether an investment strategy is 'unacceptably risky'? I think we all better get used to the phrase 'nanny state'.

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