Last week one of the biggest financial stories was George Osbourne’s effective dismantling of the FSA and returning full supervisory powers to the Bank of England.
The problem being, of course,as has been widely pointed out, no regulator across the world appears to have really seen the financial crisis coming, instead living in hope that while they made hay while the sun shined, that the sun would keep shining. The regulators were all fooled by complex inventment instruments, and so were the rating agencies, the sellers, and the buyers together. Only a few lone voices saw any real danger and they were ignored until too late.
The danger is that the change in regulatory structure is not simply too little too late, but that it will also cause restrictions on economic growth. If the Bank of England can now start to restrict mortgage lending, and lending to business, the resulting lack of credit in the economy can only constrain growth, and come at precisely the wrong time.
This is probably even more a salient point as Mervyn King has suggested that interest rates may have to rise sooner, rather than later. In which case, it can only create yet another additional pressure on credit in the economy. While too much credit has been proven to be a bad thing, too little credit is demonstratively counter-productive as well.
In the meantime, how effective can the Bank of England be with main regulatory powers under it’s main control, if no one in the decision-making process notices the real dangers anyway? And how likely is the Bank of England going to address existing economic imbalances, not least in the UK property market and its still extant bubble, after allowing it to develop for so long?
The real problem for many people is not regulatory supervision either, as unfortunately consumer-orientated needs are still being driven by smaller, daresay ineffective agencies. For example, the FSA will now become just Consumer Direct, an organisation that for all intents and purposes is simply a conduit for complaints, rather than a body that can truly address them in the first place. And then there are the other consumer bodies, weak and little effective, such as the Office of Fair Trading which has continued to give the green light to unscrupulous lenders, while the Ministry of Justice continues to licence debt claims management companies which have taken money from consumers for years, and yet never delivered a return for them.
There is a serious problem with regulation and supervision of the financial services industry being disjointed. While dismantling the FSA may seem like an initially helpful move, evidence suggests the real reform is required at the point where consumers meet service providers, and as yet, this area still remains disjointed and exposes consumers to unnecessary exploitation.
