FSA promises 'regulation revolution'
Wednesday, 25 February 2009 12:00 AM
By Alex Stevenson
Financial Services Authority (FSA) chairman Adair Turner pledged a "revolution" in reform to MPs in Westminster this afternoon.
Lord Turner, giving evidence to the Treasury select committee, said the financial watchdog was "going to be fit for purpose" after fundamental changes are carried out.
Most of the previous witnesses before the committee on its banking crisis inquiry have pointed the finger at the FSA as the body which failed to see many of the problems of recent months coming.
And Lord Turner said the FSA had been "more open than any other institution in apologising" over regulatory failures prior to the collapse of Northern Rock in September 2007.
He argued the failure regarding the four banks which required government assistance a year after the Northern Rock collapse was more "systemic", however, arguing it was widely accepted problems existed.
"The world was awash with eradicate economists arguing the world, as a result of structured credit development and derivatives, had become less risky. I think there was a very fundamental intellectual failure," he explained.
"There was a philosophy of regulation which emerged which was based on this extreme in form of confidence of markets."
Committee member Sir Peter Viggers confessed himself "completely baffled" by this argument, wanting to know whose responsibility was it if not the FSA.
Lord Turner responded by arguing there was "so much desire to avoid overlap there was underlap" between the FSA and the Bank of England.
"Between the two of us there was not enough focus. on identifying the big picture of what is going on," he added.
He pledged a "fairly complete change. in the style of banking supervision" which would no longer focus merely on the processes and structures of banks but their strategies as well.
"This isn't a small change - it amounts to a revolution," he said.
"We have to get it right in the future. If we leave the leaning against the wind entirely to boards and management. the animal spirit of capitalism gets out of hand."
The FSA will publish a report outlining its proposals for internal reform on March 18th.
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