Regulatory Myopia
A response to Financial Services Authority DP09/2
A new report* co-authored by Tim Ambler, Senior Fellow at London Business School suggests that the financial crisis was not a failure of regulation, but a failure of supervision.
‘A response to Financial Services Authority DP09/2' discusses how like Members of Parliament in the expenses scandal, the banks did not actually break any rules. And yet both the MPs and the banks were able to behave in ways which would clearly have been judged unacceptable, if only someone had bothered to look closely enough.
This paper responds to every question in the Financial Services Authority's (FSA) Response Form 09/2 and provides ten recommendations covering the following:
- Greater transparency
- Supervision of substance not detail
- Credit rating agencies
- Scope of FSA's authority to be better defined and promulgated
- Separating retail from wholesale
- ‘Too big to fail'
- Revised remit for the FSA
- The FSA's governance objectives and performance assessment
- Principles-based supervisors
- No executive international hierarchy
Tim Ambler said "The problems that became apparent in the financial crisis will not be resolved by a stricter regulatory environment. Indeed, quite the opposite may be true. What we do need, however, is improved supervision, with regulators engaging with companies on the companies' own understanding of their businesses."
The report concludes with the suggestion that more regulation creates the illusion of control and may even serve to decrease the transparency.
*The report is by Tim Ambler, and Keith Boyfield, Senior Fellow, Adam Smith Institute.
Please see the full report attached.