The new boss of the UK’s Financial Services Authority (FSA) has seen news events explode uncomfortably near. Just after taking the reins at the FSA in 2008 from John Tiner, Northern Rock collapsed. Meanwhile, blowing in from America, the credit crisis was under way and building in force. Some seven months later, with British taxpayers propping up much of the UK banking system, and the stock market still under the psychological critical 4,000 watermark, a new kind of capitalism – with much increased regulation likely to keep it on the straight and narrow – is emerging from the rubble. The rhetoric coming out of the recent London G20 summit indicates a range of detailed reform measures that, even just a few short months ago, would have been thought unthinkable and possibly even unworkable.
So is Hector Sants, 53, the right man to oversee the rebuild of the UK’s regulatory system that once boasted unsurpassed credibility and standards? Or is the re-fit job simply too baggy, too freighted with government interference and drawn-out negotiation to truly succeed? In other words, will he be able to thump the table and get things moving again without alienating the money and wealth that flowed to the City of London for so many decades?
A stellar career
The ex-Oxford University educated former investment analyst and banker has burnt a dazzling career path. He became a partner at stockbrokers Phillips & Drew in his mid twenties. He quickly learnt the ins and outs of the Wall Street and London trading floors during the 1980s and 1990s, going on to become Global Head of Equities at UBS. He then crossed over to public service, heading the FSA’s wholesale and institutional markets department between 2004-2007. He’s also packed in experience as a board member of the London Stock Exchange. So he’s not short on City experience.
Insiders describe Sants as highly pragmatic. Despite some recent tub-thumping speeches – more of in a moment – Sants is likely to follow a less confrontational path in reality. Others portray him as a driven pragmatist, not an ideologue, which is just as well given the scale of his responsibilities: managing the 2,700 staff at the FSA to help them develop clear policies for the British retail market, plus policing the financial market place itself to ensure bankers behave themselves.
A committed Christian, his personal life is private as is his faith, but his faith underpins his public service work he claims. “As a Christian,” he has written, “I feel strongly that in the latter part of one’s career, it is important to give back to the community.” It’s not as completely altruistic as it sounds; he’s still going to trouser £700,000 a year for his FSA services, a modest sum by banker standards. Recently, Sants gave a talk to the National Association of Pension Funds in Canary Wharf where he expounded his approach to regulation and the City’s future. And he couldn’t help thoroughly pummelling Gordon Brown’s handling of the economy, all but declaring him solely responsible for a boom-and-bust spending spree that, he claimed, almost wrecked the British economy. “The key question then is where do we go from here, and how do we seek to minimise the likelihood of this sequence of events or a similar crisis happening again recognising, of course, one of the truisms of financial markets ‘namely a belief we can fully abolish cycles’ is an illusory goal? It’s a very good question with no clear-cut answer.
What Sants will be pursuing vigorously – and which clearly separates him from his predecessor John Tiner – is a move away from the current principles-based approach to a more rules-based US style tack. “A principles-based approach does not work with individuals who have no principles,” he said recently. “This is a fundamental change. It is moving from regulation based on observable facts to regulation based on judgments about the future.” It may sound like a technical adjustment, but it’s a change that will likely fuel more work to lawyers. Sants hasn’t flushed the principles-based approach completely down the toilet – but it’s a profound change in emphasis.
High risk stakes
What are risks to his position? “He could be a victim of the times,” said one City analyst. “It’s largely a political appointment. The Tories could even re-form or close the FSA if they get in at the next election. He’s got all the right credentials though. But I suspect he won’t survive, especially if it’s a case of out with the old, in with the new.” However, Senior Research fellow at Chatham House Vanessa Rossi reckons Sants has got longer legs – provided he gets the proper resources behind him. “They’re [the FSA] trying to create a tougher image, but I’m still not sure how much resources they have. It’s less of a problem in the US because of the sheer numbers. The issue about a rules-based approach will occupy a lot of time on limited resources. He will also have to fight his corner on staffing and resources too.”
Meanwhile, Sants himself has come out with plenty of fighting talk. “There is a view that people are not frightened of the FSA,” he said recently. “I can assure you that this is a view I am determined to correct. People should be very frightened of the FSA.” That could include some of the execs at HBOS and Royal Bank of Scotland. Whether Sants will be seriously scary in reality remains to be seen, given tight resources and a general election en route. No government wants to fund a big regulator so close to an election when so much else is being cut to the bone.
Other systematic issues remain around his remit. What many financial professionals themselves are still struggling to come to terms with is that the money markets are now global creatures with little or no global regulation. Sants can certainly do his best to improve or upgrade what happens in the UK. But beyond the UK and the City, he has little power, other than more talk of global co-ordination and co-operation. But sorting out your own house first makes good sense – provided the politicians allow him to get on with it.