Treasury Select Committee

Katie Taylor - Political Analyst - 26th February 2009 - 12:23

Yesterday saw the Treasury Select Committee continue their enquiry into the banking crisis, taking evidence from FSA Chief Executive Hector Sants, Chairman Adair Turner, and Financial Services Compensation Scheme (FSCS) Chief Executive Loretta Minghella.

As expected the Financial Services Authority (FSA) representatives were grilled extensively by the committee of cross-party MP's.

Adair Turner admitted a change in the structure of banking regulation is clearly needed. He told the committee he will be publishing a report on March 18th, alongside several FSA discussion papers, which will contain a raft of proposals which "amount to a revolution". Turner stated the FSA will be "fit for purpose" once these changes are made.

Turner went on to accept and apologised for FSA's role in the failure of Northern Rock, although he believes FSA's most important failure was not recognising the overall systemic risk in the UK. In retrospect Turner says FSA should have been more involved in sectoral analysis, and going forward both FSA and the Bank of England need to play a significant role in ensuring financial stability, even if that means some degree of overlap.

Hector Sants agreed with all of Turner's comments. He also told the committee that FSA is a long way through a set of changes, and is a "fundamentally different organisation" than it was 12-18 months ago.

Talking about the Compensation Scheme, Loretta Minghella admitted it was unfortunate that good firms have to pay for bad firms, and recognised that the bills are coming at a very difficult time. She said as a result the issue of pre-funding will clearly come back onto the agenda.

Turner agreed that there are wide and complicated issues around the compensation scheme, and in the light of the Icelandic situation, pre-funding of a European compensation scheme should also be discussed.

Minghella said the FSCS won't be able to deliver 7 day pay outs without the changes FSA is putting forward to ensure banks have the appropriate and accessible systems in place.

Moving on, the committee raised questions around product regulation, specifically regulation of mortgage products. Turner said this is an issue FSA is currently looking into, and they plan to release their report into the pros and cons in Q3 this year.

Other topics discussed included the regulation of credit agencies, toxic debts, the collapse of the Icelandic banks and FSA's remuneration policies.