jump to navigation

fsa on shareholder activism and regulation August 19, 2009

Posted by Bradley in : financial regulation , comments closed

Today the FSA published on its website a “Letter sent out to trade associations” which discusses “how its rules apply to activist shareholders who wish to work together to promote effective corporate governance in companies in which they have invested”. I assume the reference to trade associations in the plural is to the ISC’s members: ABI, AIC, IMA and NAPF. Others who are interested find out via the web site.

making trading suspensions effective August 4, 2009

Posted by Bradley in : financial regulation , comments closed

The UK Government is consulting on the idea of making it easier for the FSA to communicate trading suspensions with respect to the OTC market to market participants by making general announcements (by Regulatory Information Service (RIS)) rather than by issuing individual instructions to prevent specific market participants from trading. However, under the new rules the FSA would retain the ability to direct a trading suspension to groups of market participants or to individual firms rather than issuing a general order. The consultation document suggests this power is likely to be used very rarely, in contrast to suspension of trading on regulated markets, and it doesn’t seem to be sensible to require the FSA to send out individual notices where market participants could reasonably be expected to pay attention to regulatory announcements. The way that the document assumes that suspensions directed to some part only of the market contrasts with how I have always thought about suspensions (and see the SEC on suspensions here). And the draft statutory instrument in the document suggests that individual firms may be able to challenge a suspension with respect to their trading. But this suspension power is, under Mifid, an incident not of the regulation of regulated markets but of the regulation of investment services businesses. Despite all the talk about transnational agreements about financial regulation, comparing financial regulation across borders doesn’t get any easier!

uk financial regulation (building britain’s future) July 8, 2009

Posted by Bradley in : financial regulation , comments closed

As part of the ongoing restructuring of financial regulation, the Chancellor announced new proposals for changing financial regulation (the full document is here (with the Building Britain’s Future logo on the front)). The Chancellor wants:

better informed consumers, who have greater choices, in a more competitive market

In order to help consumers there’s a proposal to consolidate existing FSA resources to provide separate independent consumer education. It’s not clear exactly what this means. But it’s supposed to “empower” consumers. The full document says there is to be a national money guidance service (more of what is being done already, but there is a consultation in an annex to the document which asks for reactions) and that there are to be simple financial products available:

so that there is always an easy-to understand option for consumers who are not looking for potentially complex or
sophisticated products.

Of course this doesn’t guarantee that consumers will choose the simpler products (tellingly, in the consultation section there’s a question asking why some simpler products don’t sell well), or that they will be more suitable to any particular consumer than more complex products. And strikingly to someone based in the US, the section of the report dealing with remedies for consumers states:

The Government believes that the emphasis should remain on ensuring that firms compensate the consumer voluntarily.

There’s a lot more, including proposals for more effective (not better) regulation (in the report there are some references to the idea of better (in the sense of more effective) regulation), and a new proposal for a Council for Financial Stability – which will bring together the Bank of England, the FSA and the Treasury, with some references to governance arrangements (interesting in the light of the IMF’s recently published working paper on financial regulator governance arrangements). The FSA is to be given a new statutory duty to promote sound international regulation and supervision, and there’s a promise to propose to the G20 in the fall arrangements for workouts for large multinational banks.

w(h)ither financial regulation? June 26, 2009

Posted by Bradley in : financial regulation , comments closed

As the Financial Stability Board holds its inaugural meeting, and the IMF invites civil society to comment on IMF governance (here), Vince Cable at the New Statesman has a depressing assessment of what is going on with financial regulation reform in the UK:

It is deeply worrying that some of the most important policy questions for a generation are now being decided by default and in a political vacuum…The response to all these questions is a lazy, uncritical, self-serving one: that, bar a few regulatory tweaks that will need to be made, the previous regime was essentially fine….Yet it is only a matter of months since half of the British banking system collapsed and had to be rescued by the state through total or partial nationalisation.

I’m not sure that things are much better in the US. The administration’s reform proposals are much weedier than they might have been. ISDA is busy warning the FSA to be more careful and slower about introducing changes to regulation. And ISDA suggests that the FSA can learn from the policy discussions in the US:

…further levels of standardization may actually be of debatable value. In this area, the public-policy debate in the US is instructive. A number of end-user organizations have indicated quite clearly that, while they support the objective of greater systemic resilience, they oppose artificial limits on the range of contracts available to them. Their needs are only truly served by the ability of financial services firms to tailor contracts to their specific requirements.

Sounds like business as usual.

guardian highlights new fsa failing June 19, 2009

Posted by Bradley in : financial regulation , comments closed

Much of the investor education movement involves information provided by firms who hope to make money out of customers by seeming to be friendly to their needs. The Guardian’s disclosures about the FSA’s moneymadeclear website (“helping you with your money”) today perhaps suggest the UK needs a consumer protection regulator as much as the US does:

The FSA’s site, Moneymadeclear, was set up to provide easy-to-understand and independent information and tools to help consumers learn about financial products.
While the site offers purpose-built tools to help people compare mortgages and savings accounts, the only link for comparison sites on its cards and loans page is to LendersCompared.org.uk, which is paid for by the largest home credit companies in the UK….
The cheapest rate Guardian Money could find quoted on the LendersCompared site was in excess of 120% APR, while the most expensive – a £100 home collected loan from CLC Finance repaid in 15 instalments of £10 a week – has an APR of 1,303.2% APR.

bankers’ remuneration May 15, 2009

Posted by Bradley in : financial regulation , comments closed

In a week when UK press attention has been focused on MPs’ expense claims (it’s a bit like reading about corporate scandals, but on a smaller, rather more ridiculous, scale) the House of Commons Treasury Committee published its report on corporate governance and pay in the City (note that none of the members of the committee appears on the lists of MPs the Telegraph has identified as makers of dubious claims). Here’s a taste:

On remuneration we conclude that the banking crisis has exposed serious flaws and shortcomings in remuneration practices in the banking sector and, in particular, within investment banking. We found that bonus-driven remuneration structures encouraged reckless and excessive risk-taking and that the design of bonus schemes was not aligned with the interests of shareholders and the long-term sustainability of the banks. We express concern that the Turner Review downplays the role that remuneration played in causing the banking crisis and question whether the Financial Services Authority has attached sufficient priority to tackling remuneration in the City.

There are some questions in the report about whether it is wise to rely on people very connected to the financial markets to develop solutions to the current problems, for example:

We suspect that Lord Myners’ City background, and naiveté as to the public perception of these matters, may have led him to place too much trust in an RBS Board that he himself described to us as “distinguished”.

And:

we are not convinced that Sir David’s background and close links with the City of London make him the ideal person to take on the task of reviewing corporate governance arrangements in the banking sector.

But there’s some other, rather odd, stuff too. I suppose that because this report is part of a series (after reports on Icelandic banks and dealing with bank failures) there’s a temptation to shove stuff in even if it doesn’t fit very well, but why does a discussion of the role of the media (in particular of whether the media encouraged the run on Northern Rock, rather than of media coverage of remuneration issues) appear in a report on corporate governance and pay? On the other hand, perhaps this is a good thing, as the committee does not endorse silencing of the media in financial crises:

The press has generally acted responsibly when asked to show restraint in particular areas. Too often, indeed, those responsible for creating the current crisis have sought refuge in blaming the media for their own conduct….it is crucial that the public are kept informed about institutions holding their money. If the public is to trust the banks in the future it needs to be confident it has sufficient information on how they are operating, and that such information is not restricted to those on the inside. Indeed, the Government may wish to look carefully about the disclosure obligations applying to banks and other financial institutions to see if further transparency would be beneficial.