Download Perspectives on regulatory reform – the UK experience

IMF/Bank of Israel
Financial Sector Conference
ISRAEL’S CAPITAL MARKET REFORMS:
SUPERVISORY APPROACHES AND MANAGING CHANGE
Perspectives on regulatory reform – the UK experience
By Michael Foot
Chairman of Promontory Financial Group (UK) Ltd
Why did UK change?
• Change in the industry
• Desire for clarity of function to each
agency
• Bringing “muscle”/numbers to bear
• Cost effective
• Consistency across competing industries
Efficiency gains
• Large economies of scale
• Weight of numbers in areas like IT
• Focus on regulatory issues only(esp.
important for banking supervisors)
• Freedom from “history”, public sector pay
limits etc
RESULT: Fee increases kept down to
inflation despite wages growth
Incentives for firms
• Large conglomerates got the “best deal”
and were keen from the start.
• Smaller specialist firms much more wary
• Sectors were promised no cross
subsidisation between sectors
• Firms were given real governance control
• Issues like Basel II proved the value of the
new model
Incentives for staff
• Wider career opportunities
• Better pay and prospects
• Important to identify who you want to keep
and who to lose
• Need to offer flexible & varied career paths
But there were problems and regulator will
never match private sector pay or anonymity
Incentives for others
 For consumers
- Tangible simplification of the system
- Capacity to deal with consumer
issues/information etc
 For Government
- Must be convinced accountability still
possible despite independence
Lessons on management & staff
• Top management chosen early; 3 out 4
“stuck around to finish the job”
• Create something new – not duplicate the
old
• Get buy-in from the staff you want to keep
• Share good & bad news early & openly
Lessons on setting goals
Need for:
• Clarity on final structure & objectives
• Realism don’t walk before you can run
• Governance must combine operational
independence with accountability
• Enough & “independent” finance
• Enough time
The biggest problems - 1
1. Changing culture is never easy
2. Management must run the “old” and build
the new. This needs support & luck
3. Things always take longer than you hope
4. Stakeholders get impatient
5. Transition costs money
Role of the central bank
Financial stability role underpinned by:
• Cross membership of Boards
• Formal tripartite system of BOE,FSA,HMT
(which covered conflicts of interest)
• Extensive practical co-operation under
tripartite arrangements
• Secondments of staff
• Policy co-ordination
Problem areas
When there is conflict:
monetary policy vs financial stability
prudential vs consumer/investor needs
Especially where an issue may be systemic
(Barings vs Northern Rock)
Where regulatory standards differ greatly
between sectors.
Home/host tensions remain
Potential macro problems
always exist
• How they are resolved will depend upon
country’s history and politics
In the UK the Government is clearly the
final arbiter, at least while we are out of
the Euro zone……