RIP FSA?

22 07 2009

FSA LogoGeorge Osborne, the shadow chancellor, said that the Conservatives planned to get rid of the Financial Services Authority if they were to win the next general election. Under their plan, the FSA would be renamed to the Consumer Protection Agency and would be responsible for consumer issues while the Bank of England would have overall power and would also be responsible for monitoring and regulating the banking sector. This move would abolish the tripartitie system consisting of the FSA, the Bank of England and the Treasury which was set up in 1997 by the then chancellor and now Prime Minister, Gordon Brown.

Leaving the pros and cons of such a policy on one side, I don’t think it’s right to announce definite plans of what would happen to the FSA if the Tories were to win power. That is because it diminishes FSA’s authority now when it is trying to regulate the banking sector as nobody will then take them seriously because everybody knows that the FSA’s days are numbered.

Think of a CEO that announces that he is to step down after a year and names his successor. Who do you think will hold the real power now, the CEO or the person who will succeed him? A leader with a sword over his head doesn’t have any significant power as everybody in the organisation will listen to the new guy who will eventually be in power.

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Rather than really bring about a change in the banking regulation, it seems that by announcing their plans, the Tories are trying to earn some political brownie points by taking advantage of Gordon Brown’s unpopularity.

Even though it may be obvious from the numerous polls and the general sentiment amongst the public that the Conservatives are going to win the next election, it does not mean that they have won the election and are in power. The mainstream media are increasingly interpreting the phrase “if the Tories win the next general election” as “when the Tories win the election”.

The thing is, whether we like it or not, Gordon Brown is still the Prime Minister and the problems plaguing the financial sector have to be dealt with now, by those who are in power now. By announcing that the FSA is doomed and the media hanging on to George Osborne’s every word, it affects the authority that the people in power have when they try to be though with those running the financial institutions.

So when you read the headline “FSA warns banks over long-term bonuses” in the Financial Times, you don’t picture a strict headteacher warning a student, but instead picture a lion without any claws or teeth in a zoo letting out an inaudible whimper rather than a ferocious roar. If the regulators and policy makers have no authority, how is the change to be brought about. It’s no wonder then that some of the financial institutions, which not less than a year back, were on the brink of collapse and some even went to the government cap-in-hand asking for financial help are now announcing record profits and are still trying to pay bonuses even when the so called “bonus culture” has been criticized by the regulators, the prime minister and the chancellor for hastening the speed of the financial mess.

Sure, its necessary for the public to know the policies of each party to enable them to make an informed decision about whom they will cast their vote. But for a political party that is desperately trying to distance itself from the negative publicity from the MPs expenses scandal and hoping to win the next general election, it doesn’t seem right when it tries to capitalise from its opponent’s unpopularity and kicking him while he is down.

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