Once upon a time a sensible regulator existed

http://www.ft.com/cms/s/0/171bf9aa-9fd2-11dd-a3fa-000077b07658.html

From Mr Stanislas M. Yassukovich.
Sir, The widening discussion about the failure of the regulatory system in the financial services industry still misses the point. How depressing to see Lord Turner missing it as well in calling for more money for the Financial Services Authority. As in so many areas of public service, throwing money at the problem is not the answer.
Regulatory complexity has been one of the causes of resource inadequacy and, ironically, of mission failure as well. It is now accepted by many that the removal of banking supervision from the Bank of England, as lender of last resort, was a near-fatal mistake. The agglomeration of services in single banking groups was never a valid justification for a super regulator. Multinational institutions had been answerable to several regulators for some time. The main loss was the Bank's market "feel" which it maintained because it was itself in the market on a daily basis.
Admittedly, its other main weapon as a supervisor - moral authority - was fading fast. To be in the bad books of the Bank was devastating, when reputation counted for something. Reputation risk now barely exists for institutions and even less for individual practitioners. It is the failure to accommodate this new reality that has undermined the FSA's enforcement process.
We have seen serious regulatory lapses, the subject of extended investigations, culminating in fines. These are shrugged off as a cost of doing business by the entities concerned whose franchises suffer no visible damage. Indeed, the heads of the institutions concerned continue as members of the financial establishment in good standing. Institutions are increasingly immune because shutting them down suddenly and entirely involves systemic risk (the Lehman failure tends to prove this). The answer is a more ruthless and urgent enforcement process against individual practitioners found in breach of principles - and this should include their corporate governors. Regulators in other fields seem to cope with the judicial process challenge this entails.
As to the suggestion that complicated, modern markets need even more expensive experts to regulate them, recent experience is not supportive. There is no financial instrument or market activity that cannot easily be subjected to the fundamental principle that higher returns automatically entail higher risks. The FSA seems to have had difficulty applying this test across the vast range of its regulatory mandate. The days of the all-encompassing financial conglomerates seem to be drawing to a close. It is time to review the concept of a conglomerate regulator.
Stanislas M. Yassukovich,
Bonnieux, France
Former Chairman, The Securities Association, and former Deputy Chairman, London Stock Exchange