FSA Handover Provides Timely Lesson For Ofcom

I am sure that key figures at Ofcom are watching the current hand over at the Financial Services Authority with interest. The departure of Chairman/Chief Executive Sir Howard Davies marks the end of the initial set-up period for the financial services super-regulator.

Davies is off to be Director of the London School of Economics and leaves behind a regulator that is a relatively successful attempt at the difficult job of converging ten formerly separate regulatory organizations under one masthead.

Of course many of the difficulties arising from the amalgamation are only now beginning to come to the fore. And incoming Chairman Callum McCarthy has not held back in pointing out where he sees the cracks in the current organisational structure.

John Tiner, who will move up to sit in the FSA’s Chief Executive�s seat is also seemingly keen to make changes and is planning a management shakeup to shift the strategic direction, which he sees as increasingly muddled.

None of this is all that surprising � new people, new approach. But it highlights the precarious nature of bringing together once independent organisations, their approaches and their people. As with most relationships the bickering starts once the honeymoon is over.

There is a sensible rationale behind bringing regulatory agencies within the same sector together as one. It reduces the potential for double jeopardy and leads to regulatory certainty. No longer are regulators treading on each others toes, no longer are stakeholders having to watch from every angle.

But super regulators have inherent problems. Broadening the range of their activities places strains on their structure and more particularly their management. Greater scope brings with it greater risk of failure and sustaining a reputation becomes increasingly difficult in the face of mounting criticism.

The FSA is beginning to feel this pressure. It has too many operational priorities, some of which clash. These range from producing tools for consumers to get the right financial advice to maintaining robust and efficient markets. With 2,600 staff, from ten different cultures there are naturally different views as to the best approach.

Ofcom only has five regulators to pull together. But arguably it has a much more difficult job ahead. Its mandate is sweeping and it will have to balance interests that at times will be in conflict, even contradiction. There will be no shortage of opinions, not least the voices from the incoming regulators. And these people are unlikely to ease into regulatory convergence as smoothly as those sitting in the offices on the higher floors.

The FSA offers Ofcom a timely lesson. Parliament has now spoken and Ofcom�s rulebook is in hand, but it is essential for the new regulator to distill further if it is not to drown in either its own mandate or the influx of differing cultures and approaches. Priorities must be honed if the regulator is to ensure that it is not to get quickly and badly confused.

This will be a challenging job for senior managers and recent critics of Ofcom�s ballooning salary bill will do right to remember the task before criticising. Such salaries, large as they may be, are the executive balm that will soothe when tackling the inevitable teething troubles that lie ahead.