Davies defends his record at FSA

Sir Howard: Quits as FSA chief on Friday

Sir Howard Davies, the outgoing head of the Financial Services Authority (FSA) has defended his record of financial regulation on his last day in the job.

He defended the role of the FSA in the Equitable Life scandal, but he said there were still a lot of problems in the retail financial sector.

Speaking on BBC Radio 4's Today Programme, Sir Howard, who is retiring as the UK's chief financial regulator, denied that he could have stepped in sooner to save Equitable Life.

"Equitable Life was holed below the water before the FSA stepped in," he said.

Sir Howard said that there was a case for more pre-emptive intervention, but warned of the danger of the FSA becoming an "all purpose Cassandra" which was always warning of "the next ten financial crises".

Educating the consumer

And he said that the most important task the FSA could perform was educating the public about the nature of the risks they were undertaking.

The only way you will get better decisions is if you get informed consumers Sir Howard Davies, FSA

"I think there are still a lot of problems about the retail financial services sector, in the way in which people make long term savings decisions.

"We have seen in the bust in the stock market that a lot of people were investing in endowment mortgages or with profits funds and didn't understand what they had.

"Our focus should be on educating the consumer. The only way you will get better decisions is if you get informed consumers."

Sir Howard said that the new regulatory structure which he created, merging five different financial regulatory bodies into one, was the right model.

Catching the criminal

But he said it would always be impossible to catch all those who mis-sold financial products, just as it was impossible for the police to catch all criminals.

Among the most difficult problems that Mr Davies will bequeath to his successor is the collapse of split-capital trusts.

Split-capital investment trusts are complex investments that were marketed as an ideal way to save for retirement or school fees.

But high levels of bank debt exposed the funds' fragility when market conditions worsened.

In total, 19 trusts in the sector have gone to the wall taking an estimated £770m of investor money with them.

Distinguished career

Sir Howard is due to step down at the end of this week to become head of the London School of Economics.

He had previously been deputy governor of the Bank of England, and director general of the CBI, before moving to take over the newly created FSA in 1997.

Callum McCarthy, former head of energy regulator Ofgem, will take over as FSA Chairman, while John Tiner, the FSA's current managing director, will assume the role of chief executive.