Last week two British supervisors were appointed to prominent positions at the Financial Stability Board, the body charged by the G20 with monitoring risks to the financial system.
Adair Turner, chairman of the Financial Supervisory Authority, was appointed chairman of the standing committee for supervisory and regulatory co-operation, responsible for addressing co-ordination issues and in particular setting guidelines for colleges of supervisors.
These are critical topics for the future of regulation, as the world’s supervisors come to grips with the interconnectedness of the financial system and the global reach of individual institutions. Ensuring a level playing field between jurisdictions has been highlighted by banks and lawyers as the single most important aspect of regulatory reform.
Meanwhile, Paul Tucker, deputy governor of the Bank of England, will head a working group on cross-border crisis management, one of the most glaring holes in the global supervisory framework revealed by the credit crisis.
While it would be rash to overstate the importance of these appointments, they came as something of a surprise given the shifting balance of power among regulators. The British regulatory approach and its institutions took a severe blow to their reputations following the nationalisation of Northern Rock and other high street names, the fallout from the Icelandic banking collapse and the obvious failings of the “light touch” approach.
Many feel the UK’s influence in setting the global agenda has been greatly reduced, especially following the European elections and the decision of the Conservative party to pull out of the main centre-right bloc in the EU parliament.
Certainly the dominant voices in Europe have been those of France and Germany, pushing for much stricter and more federalised regulation than the UK is comfortable with. This is reflected in the draconian Alternative Investment Managers Directive, perceived as a direct strike at London, and the unprecedented (some have argued unconstitutional) powers initially proposed for the new pan-European supervisors.
Alternative Investment Manager Directive
However, the FSA in particular has pulled out all the stops to regain its credibility, pushing ahead quickly with regulatory proposals, increasing enforcement activity and penalties, and hiring hundreds of staff to beef up its day-to-day oversight. All the while stressing the need for international co-ordination, it has nevertheless pushed ahead with reform of liquidity requirements at a much faster pace than any other major jurisdiction, and also sought to lead the debate on counter-cyclical capital.
The appointments of two Britons to key committees of the FSB suggests these efforts may have paid off. The question remains, however, of whether the FSB itself will have any teeth, or whether its recommendations will be ignored like those of its predecessor were before the crisis. With so many institutions now being established to monitor and make recommendations on financial stability, there is a risk that the proliferation of voices will create chaos, not order.