Square Mile must make itself heard

HARD though it is to believe, it is almost two years since the Financial Services Authority took on its full legal powers.

That means we are within weeks of the completion of what is known in Whitehall/City jargon as N2 plus 2 but which normal mortals would understand as being the detailed review commissioned by the Treasury into how the new regulatory structure for the financial services industry seems to be working.

It is a crucial review but, however well-intentioned it might have been at inception, it could not have come at a worse time for the City.

It is not just that we have a three-year bear market that has exposed as threadbare many of the promises and assumption made in more certain times, but there have also been spectacular individual and sectoral failures - from Equitable Life to endowment mis-selling and from split capital trusts to precipice bonds.

Never has an entire population been so worried about pension provision; never has there been such a collapse in trust between a nation and its savings industry.

The huge issue for that industry and for the City is how it is going to control the politicians when this report lands on their desks. One has only to look at the recent hearings and reports of the Treasury Select Committee to realise that its members' detailed understanding of financial matters is zilch, but that is not going to stop them having an opinion.

Hooked as they are on publicity, they will also start playing to the strident but only superficially informed gallery of consumer group and media opinion and from there it is but a short step to the espousal of the principle that no retail customer must ever lose money on a financial product bought from the City.

That sounds extreme but it is close to where we are already. Caveat emptor - buyer beware - may be the law of the land but the reality is that companies, fearful of their reputation and terrified of bad publicity from an irresponsible and superficially judgmental Press, regularly ignore their strict legal liability and pay off those whom they have no obligation in law to compensate.

The fear must be that the review of financial services regulation will enshrine that dubious - indeed unworkable - principle. It will not conclude, as it should, that failures are a necessary part of the system. On the contrary, with one eye on the voters and the other on a spot on the 10 o'clock news, the politicians will decree that every failure must be compensated.

Even if they draw back from that extreme position, they will not go to the other extreme and say that buyers are responsible for their own decisions and must bear the consequences, provided they were sufficiently well-informed at the time of the deal.

That potentially leaves the savings industry in a limbo - indeed in a quasi-legal void - that makes intelligent business development well-nigh impossible.

A robust engagement by the City, now, might head this off. But most of the firms that could fight the good fight have retreated in sheepish silence, embarrassed by their manifest failures and the losses they have caused clients in recent times. That is understandable but not acceptable. If they want a business for the future, they need to defend it now. The City has to find its political voice.

Dual chance for IDS

RECENT surveys have suggested that two things command total cross-party support. One is an antipathy to the ban on foxhunting, the heavy-handed legislation being opposed now by more than half the population.

The other is concern about pensions, which cuts across all sectors of society and all political allegiances. The message from the former is that the proposed legislation should be scrapped and from the latter that the population is desperate for the State and the private sector to find a way through the problems.

So if Iain Duncan Smith really wants to do more than cling on to his job and has hopes of actually producing a winning ticket for the next General Election, he should merge the Countryside Alliance with the Pension Reform Group and steal the ideas of both. Even he might win on that platform. No? Well someone from the Conservatives might.

Crash resistant

AMUSING to see that the day the Financial Times ran an unconfirmed - indeed heavily denied - story about the London Stock Exchange moving its clearing services to Frankfurt, Eurex could not open for business until 11am because of systems problems.

Whatever you might think of the London Clearing House and whether it will change when it comes under the control of the French-dominated Euronext, no one suggests that its computers fall over on a regular basis. That ought to count for something in this great debate.

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