Thursday, 27 March 2008
FSA - The Watchdog That Didn't Bark
Finally, then, a fairly frank admission by the FSA that it was asleep on the Northern Rock job.
I have never worked in banking: but from my energy-sector experience it has been clear that the FSA (and its predecessor the SFA) has form, when it comes to being asleep on duty.
In 1995 the new wave of 'energy merchants', Enron well to the fore, turned up in London and insisted on being financially regulated. Oh no, said the SFA, oil trading takes place under an exemption (clever lobbying by the oil companies) and no-one trades anything else in the energy line: Go Away, you are Wasting Our Time.
To cut a long story short, Enron et al had to frighten the SFA with an account of the exotic energy derivatives they intended to trade; and the SFA reluctantly agreed to allow them to be regulated - bizarre though this sounds.
Fast-foward to 2000, and the arrangements for trading electricity are being reformed (prop: Ofgem, then under Callum McCarthy who is now, err ... FSA chairman!). The volume of electricity trading is expected to increase dramatically under the new set-up, and the FSA is invited to become engaged in the process. Oh no, says the FSA, no-one is spec-trading even gas, let alone electricity: Go Away etc etc.
To cut the second long story short, those who knew better thrust under the FSA's nose details of just how much spec-trading was going on in gas and electricity already - it was rather a lot - and the FSA went away embarrassed and wiser.
"Egregious business model at Northern Rock ? Oh no ..." - you can just hear the response, can't you?