Wednesday, December 24

The FSA shows its fangs despite global staff challenges

Finally the Financial Services Authority, the lead regulator of the United Kingdom, is starting to show its fangs. Good step but much more is required, I am afraid. I quote:

A record number of fines has been imposed by the City watchdog this year as it cracked down on consumer issues such as mortgage fraud and the mis-selling of payment protection insurance. Almost 50 penalties have been announced to date by the Financial Services Authority, more than twice as many as last year and half as much again as the previous record. Another heavy year of penalties is expected in 2009.

But this is the issue, the quality of the regulatory staff across the world is quite concerning. It is also not surprising, here's a simple bargain for you. Would you want to join a regulator when you could have been working for a bank at a higher salary? No. Here's what the head of the CBOE said about the SEC staff.

Financial illiteracy among junior staff at the US Securities and Exchange Commission made it easier for Bernard Madoff to operate his alleged $50bn fraud undetected, the head of the US’s biggest options exchange has warned.

Bill Brodsky, chief executive of the Chicago Board Options Exchange, said the scandal showed that inspector-level staff had not received enough training to enable them sufficiently to check for fraud.

“The people doing the examinations have no clue what the right questions are to ask,” he said in an interview with the Financial Times. “Going in and asking questions out of a manual doesn’t help you understand how a business works.”

Mr Brodsky said part of the problem at the SEC was that many of the staff at the regulator did not have the fundamental investment experience.

“They’re young, they very often don’t have any money and they’re not allowed to use these instruments themselves. How do they equip themselves to do a good job?

“How do you take kids out of college and get them to understand something they have no tangible connection to?”

Good questions, I am not sure if there are good answers to the regulatory conundrum but good people are required, no questions asked.

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