Sunday, November 25, 2012

FSA 'cop out' in HBOS collapse

I have been getting some pretty vociferous criticism from certain city apologists in recent weeks, all of whom seem to think that my observations about the financial sector and the FSA are gratuitous and without merit.

As I have said many times before, I don't mind in the least if other people want to criticise me, it is after all the nature of a free society that we have the opportunity to speak our minds and express our honestly-held opinions. It is always a bit irksome however, when I am made to feel that mine is the only voice making these remarks, and that my views are considered as uninformed.

One of my biggest criticisms of the FSA is that they are too focused on process and procedure. They fail to think laterally, they don't work 'out of the box', and that they have a cavalier disregard for the interests of the investing public, preferring to engage in labyrinthine civil service-style exercises of paper shuffling and thematic reviews, rather than get their sleeves rolled up and stuck in to those banksters and financial criminal who are making a fortune from their wrong-doing in the City.

This is what pisses me off about them so much, because they have not learned the lessons of history. They think that by staffing themselves with former civil servants and Bank of England careerists, all of them suffering from the 'Good Chaps' syndrome to the core, that they think they can somehow regulate a market full of some of the most evil crooks and wide boys under the sun!

In this, they are absolutely no different from their former predecessors in the Department of Trade and Industry who had precisely the same attitude, and who spent their time arguing about legal minutiae, while the company they were supposed to be regulating collapsed in a welter of debts. 

They were criticised by the Parliamentary Ombudsman in the David Langford Case back in the 1980's. This was a case of an investment institution which was supposed to be regulated by a Government Agency which collapsed, despite the fact that the  Agency knew all about its problems and the failings of its directors.

When the Ombudsman reported his findings he criticised the DTI severely.  He found their conduct 'surprising', other actions were described as 'extraordinary', he criticised the whole Department for 'their poor performance here and for their apparent lack of regard for the protection of the public interest'. He found other failings which he believed 'merited criticism', and he considered their overall handling of matters to be 'ineffective and ill-judged'. His most telling phrase was saved for the end when he opined that '...the Department showed a lamentable lack of concern for the interests of those members of the public who had a right to assume that the DTI's licensing system offered them a reasonable measure of protection for their investments...'

So you can imagine how I responded when I read an article in the Saturday Telegraph which bore as its strap-line, the title of this blog!

Lord Turnbull, a former head of the Treasury and the Civil Service  was questioning two former FSA Directors, Clive Briault, the former managing director of retail markets at the FSA, and David Strachan, the former director of major retail group, as part of his role as a member of the parliamentary commission on banking standards.

Lord Turnbull put it straight to these former FSA apparatchiks. He accused the Financial Services Authority with an obsession with process which meant it failed to ask basic questions and spot the problems that built up at HBOS in the years before its collapse, according to Lord Turnbull.

Regulators failed to “smell a rat” in the years before the collapse of HBOS because they were too focused on process and did not ask “simple questions”, it has been claimed.

Lord Turnbull, a former head of the Treasury and the Civil Service, told two former senior officials of the Financial Services Authority that the regulator’s excuses for its handling of HBOS amounted to a “cop out”.

“More than halfway through the relevant period for which the company is being sanctioned … we are finding things like 'required actions have been satisfied, issue closed’. And then … these really swingeing criticisms are made, dating from Jan 1 2006, and yet halfway through that period you were not making criticisms of anything like that strength. Well I think that is an absolute cop out — if something goes wrong you just wash your hands of it,” said Lord Turnbull.

Mr Strachan, in a line worthy of Pontius Pilate said the FSA had “always been clear” that it was the “primary responsibility of managers to run their businesses responsibly”.

However, Lord Turnbull hit out at what he said were the “weakness of these systems” at the FSA, saying “does it make sense to lend this amount of money to this small number of individuals … you would have smelt a rat”.

Well, thank you Lord Turnbull for having the courage to step out from behind the arras and stick the knife where it belongs, which is firmly into the bloated egos of these useless, do-nothing, clowns!

It doesn't make a lot of difference because these two members of the protected species of the Great and Good, who have enjoyed a gilded career, are still being rewarded for their failures to oversee HBOS efficiently.

Clive Briault, a former Bank of England staffer, who then went on to cover himself with poo in another major banking failure, was responsible for overseeing supervision of Northern Rock while at the Financial Services Authority. He left the FSA by "mutual agreement" in April 2008.

No other senior figure at the tri-partite authorities of the Treasury, Bank of England and the FSA lost their job over the regulators' failure to anticipate the bank's problems or for their handling of the crisis.

His departure came just before the regulator published its internal report into what went wrong at Northern Rock.

The report would prove to be critical of the supervision operations under Mr Briault. Mr Briault proved to be eligible for £285,000 compensation, or one year's salary. Later it was reported that he received £528,952 in compensation for loss of office after he stepped down. It was later reported that he would receive a £380,000 payout. But the FSA’s Annual Report shows that figure to be much higher. Included in his total salary, Briault received a performance related bonus of £30,000. It was even later reported that he was rewarded with a £612,000 farewell package (and a pension pot worth more than £870,000).

FSA chief executive, Hector Sans, (he of the 'be very afraid' quotation) said: "Clive Briault was leaving the FSA by mutual agreement. Clive has been an outstanding colleague who has contributed much to the organisation in his time at the FSA and before that with the Bank of England."

The Treasury Select Committee of the House of Commons said that the monitoring unit Briault headed was guilty of a “systematic failure of duty” in its supervision of Northern Rock claiming that it should have spotted the bank’s risky business plan before it ran into trouble.
It sounds like the Parliamentary Commission on Banking Standards has reiterated its own criticism of Clive Briault along the lines of similar criticism he received over Northern Rock.
Since then, Clive Briault has been employed by the Malta Financial Services Authority as a consultant at a reported figure of €1,000 an hour. So far it is reported he has been paid more than €361,297.  
His latest LinkedIn profile shows he is employed in a part-time advisory capacity with KPMG. Isn't it funny how the BIg 4 consultancies are always willing to reward failure if you come from the right side of the tracks, and you are part of the culture of 'one of us'!
David Strachan, yet another Bank of England alumni, enjoyed the usual rise up the career ladder in the FSA. He Joined the FSA after working for the Bank of England from 1986-98: While with the Bank of England he undertook banking supervision and market operations, and later as head of market conduct/infrastructure, market and exchanges division.

In April 2011, Deloitte announced that David Strachan, was to join the firm as co-head of the Deloitte Centre for Regulatory Strategy.

The Deloitte Centre for Regulatory Strategy comprises experts from across Deloitte’s European network. The Centre analyses the implications of regulation for the strategic direction and business models of financial services firms and helps clients develop the most effective approaches to meeting these challenges.

Hmmmmm! Pity HBOS or Northern Rock didn't get the benefit of such a study!

So there you go! It doesn't matter how incompetent you are, you can always rely on the Big 4 consultancies to offer a helping hand to the chaps!
It takes a man like Lord Turnbull to point out that these two clowns were just engaging in a major 'cop out'!


Jason said...

Rowan: This is what pisses me off about them so much, because they have not learned the lessons of history.

If it's any help Rowan (and I know it probably isn't ^_^) people usually don't.

Upcoming economic crashes are a great example. Many foresaw the 2008 crash just as many are foreseeing the next one. When it you'll notice the same dynamics and language as occurred in 1929 -- see Galbraith for a very funny summary -- which will dupe people yet again.

People dont learn. All of the current problems reflect societal dynamics that historians have noticed time out of mind.

So the question is how you interrupt the cycle. Can you spot a moment and position where leverage in the right place will have an effect on a democratic scale?

Democracy is the weapon we have, the only way to interrupt foolish leadership, so that's the weapon we need to try and use. Since political democracy is a closed shop, media democracy and the potential for public outcry over inhumanity is a strong candidate for the only possible dam on this torrent -- short, that is, of violent insurrection.

Phil Espin said...

Your critics are talking boll*cks, you are on exactly the right track. The whole regulatory system is there to provide excuses for why the banksters should not be prosecuted. The reason those guys get well paid jobs is because they did their job properly: let the banksters get on with ripping off the public and don't interfere.

The whole banking system needs to be taken apart and made to serve the british public and sme sector. The rest of the bits can remove to Equatorial Guinea or some other hospitable location. After paying a special one off exit charge of course. Sadly none of our political parties can see that it is the bankster sector that is holding this country back.

AbogadoNZ said...

Just read this - rather late in the day but another excellent piece Rowan. The stranglehold of the Big 4 is a nexus that has to be broken. Being overpriced and of indifferent quality in a technical sense they are truly amazing. I am competing with one at present and they are charging my client 10K a month for tool that is worthless and totally inappropriate for the job. (The client is a professional practice) Then they carried out a valuation and came up with a figure that is 4 times annual profit. I have been doing this for 30 years and never seen such an appalling piece of work. At best the practice is worth 2 times profit and that is stretching it. Dreadful product carried out ineptly for a daft price.

The solution lies with us the public in making sure the present set of politicians don't get back. It is easier for us now we live in a web-enabled environment. Whether we can oust them before the damage is irrevocable is moot. Just look at Greece. OK so they deceived the EU to get into the monetary union BUT Goldmans sold them some off-balance sheet 'paper' and walked away. They too should be in the frame. Somehow we all have to insist that our pensions funds are invested in businesses that undertake not to use the Big 4 accountants and most of the banks. If we exercise our muscle they will have to listen - eventually.