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FOOL'S EYE VIEW
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On Monday, the Financial Services Authority (FSA) opened up a consultation into its proposals for regulating mortgages. The idea is to take control of consumer mortgages rather than commercial arrangements, with the line being drawn at mortgages on properties which are '40% occupied' by the borrower or immediate family. The theory is, quite reasonably, that companies and 'buy-to letters' really ought to be able to look after themselves. As well as conventional mortgages, the regulations will stretch to some other products, such as certain types of equity release scheme, that involve a first legal charge on residential property. The regulations will involve, amongst other things, detailed rules about how mortgages are presented, about confirming their suitability and about the training and competence of mortgage advisers (who will have to take exams). The FSA's Vast Empire Mortgages were added to the FSA's sprawling empire last December and it completes the super-regulator's control of the financial services industry, coming after banking supervision, insurance regulation and the activities of the regulators formerly known as the PIA, the SFA, IMRO and goodness knows who else. In a few years, we've moved from having a plethora of small regulatory bodies each responsible for a small area of financial services, to one giant with responsibility for pretty much the whole damn lot. It has connotations of Big Brother and naturally makes people a little uneasy. The flipside is that you probably need a big organisation, with widespread responsibilities, to be an effective regulator in financial services. It gets to look at the overall picture, it has the muscle to take on some powerful industry forces and it isn't tied to any one part of the industry. Already in its short life, the FSA has taken some great strides forward in making things better for the consumer and it's hard to imagine that the regulatory system could have achieved so much in its former fragmented state. Checks And Balances If we're going to have an all-powerful financial regulator, it's vitally important to have the right checks and balances in place. These mostly derive from the provisions of the Financial Services and Markets Act (which established the FSA in the first place). The primary source of control is the Treasury, which appoints the FSA's board of directors and to which it has to report to annually to say how it's getting on. An important 'balance' is that the FSA has to keep its investigation and recommendation functions separate from its decision-making and authorisation functions. The Regulatory Decisions Committee, made up of current and retired industry practitioners, was established to take control of the latter (where decisions are of 'material significance for the firms and individuals concerned'). Appeals against FSA decisions are heard by the Financial Services and Markets Tribunal, which is run by the Lord Chancellor's Department. As with other public bodies, the FSA is also subject to 'Judicial Review' by the Courts. If you have a complaint against the FSA, then the first step is to complain to the FSA itself. If that doesn't do the trick, then the next step is the "Complaints Commissioner". This has a slightly cosmetic feel to it, because she actually sits in an office at the FSA, but what's the alternative? There's not much point in having someone to regulate the regulator, because who would regulate them! Ultimately, the FSA is accountable to Parliament and Parliament is accountable to the voters. If we're happy with the situation, then we can elect Governments that say they'll keep it. If we're not happy, then we can look for someone that will change things. So what do you, Foolish voter, think of the current state of affairs? Let us know in this poll. Should we have an all-powerful financial regulator and, if so, are the current checks and balances sufficient to keep it under control? 1. We need a strong regulator and the current set up is fine and dandy! 2. We need a strong regulator, but I'd like to see more control over it. 3. Aarrgghh! It's a monster -- break it up!