FSA under fire after Blair speech

By Gavin Stamp
BBC News business reporter

The FSA is accused of being heavy-handed with its regulation

The troubled Financial Services Authority has come under fresh attack after apparent criticism by Tony Blair.

Unfavourable comments by the Prime Minister have sparked controversy at a time when the regulator is under increasing pressure.

FSA chairman Callum McCarthy has written to Mr Blair asking him to back up claims he made in a recent speech that the actions of the regulator - which oversees mortgage, pension and insurance sales - were seen to be harming well-run businesses.

Mr Blair told the Institute for Public Policy Research - in a speech entitled 'Risk and the State' - that the FSA was "seen as hugely inhibiting of efficient business by perfectly respectable companies that have never defrauded anyone".

'Damaging'

Defending the remarks, Mr Blair's office stressed he was referring to perceptions of the FSA's actions and that his sole aim was to improve regulatory performance.

Downing Street was also at pains to point out that Mr Blair was not out of step with Chancellor Gordon Brown, who was instrumental in creating the FSA after Labour's 1997 election victory and recently described its performance as 'world class'.

The Financial Services Authority didn't just pop out of the bushes Ned Cazalet, independent insurance analyst

However, the FSA believes the comments were damaging.

In his letter, Mr McCarthy said they harmed the regulator's ability "to support the principles of better regulation".

The current furore will soon die down but the debate over the powers of the UK's main financial services regulator - which some believe are too wide - is unlikely to subside.

There is growing scrutiny of how the FSA investigates cases of misconduct and mis-selling by the 30,000 financial services companies and 100,000 industry professionals it regulates.

Its enforcement procedures were criticised earlier this year after the Financial Services and Markets Tribunal ruled that a £1.1m fine handed down to Legal & General for mis-selling endowment mortgage policies was too high.

The penalty was subsequently cut to £575,000.

Review

The FSA is reviewing its investigatory procedures amid claims from insurers that some cases have not been sufficiently robust and that those accused of wrongdoing are not given adequate opportunity respond to or access evidence against them.

The Association of British Insurers, meanwhile, is preparing a dossier for the FSA outlining its members' wider concerns about the current regulatory requirements.

The FSA is charged with protecting consumers

Gripes are expected to range from the escalating costs of complying with regulation to what some regard as inappropriate and unproductive guidelines which have no clear benefit to consumers.

The British Bankers Association - which represent clearing and investment banks - says that although it does have some differences of opinion with the FSA over specific regulation, it is supportive of its role.

"Our concerns are in areas such as the definition of regulations and the clarity of interpretation," said a BBA spokesman.

The FSA says it is addressing concerns about red tape, trying to identify what costs are solely attributable to FSA statutes, seeking to eliminate obsolete guidelines and finding alternatives to regulation.

"We are totally committed to the deregulatory agenda," an FSA spokesman told the BBC.

"We would be very concerned if there was any evidence that our regulation was harming businesses."

Wider powers

Some observers believe that the Prime Minister's criticism of the FSA was somewhat paradoxical.

"I can imagine someone running a insurance company complaining about the burden of regulation," says Ned Cazalet, an independent insurance analyst.

"But if Mr Blair does not like what is going on, then surely he can go and change it."

Mr Cazalet says the FSA was deliberately given wider powers as a "super-regulator" to ensure a tougher and more professional approach to financial supervision after the BCCI and Barings scandals of previous decades.

"The FSA is the creature of the current government, which came in determined to reform financial regulation.

"The FSA didn't just pop out of the bushes. Its remit is set by the Treasury."