[A-List] UK state: musical chairs

[Michael Keaney]

Sir Howard calls it a day at FSA to take up top academic post
By Rachel Stevenson
The Independent, 13 December 2002

Sir Howard Davies, the founding chairman of the Financial Services
Authority, yesterday resigned from his post to become director of the London
School of Economics.

The announcement comes only a few weeks after Mervyn King was appointed as
the next governor of the Bank of England. Sir Howard, a former deputy
governor of the Bank, is known to have been keen to get the top job.

Sir Howard, 51, was due to step down as chairman and chief executive of the
FSA at the end of January 2004. He will leave the FSA four months ahead of
schedule, in September next year, to coincide with the start of the academic
year.

Now all eyes are on Sir Howard's possible successor at the all-encompassing
City regulator that celebrated its first anniversary last month. The
Treasury is responsible for choosing a replacement and has vowed to do so
before October 2003. It is expected to take the opportunity to split the
roles of chairman and chief executive, meaning two senior appointments are
up for grabs.

Top of the candidate list is John Tiner, currently the managing director at
the FSA, who halved his salary to join the regulator from the now doomed
accountancy firm, Andersen. He has been groomed as heir apparent to Sir
Howard but his role in regulating split-capital investment trusts, through
which investors have lost thousands this year, may have tarnished his
chances.

Other possible candidates include Ron Sandler, the former head of Lloyd's of
London who published a report on the savings market that was very warmly
received in Government circles, and Andrew Crockett, the general manager of
the Bank for International Settlements - another Bank of England runner-up.
Donald Brydon, the chairman of Axa Investment Managers who also heads the
Financial Services Practitioner Panel has been tipped, as has Paul Myners,
the former chairman of Gartmore Investment Management.

The FSA was created out of nine regulatory bodies that covered
deposit-taking, insurance and investment businesses in the UK. Sir Howard
was chairman of one of these bodies, the Securities and Investments Board in
1997, when it was renamed the Financial Services Authority. The FSA became
the statutory single financial services regulator in November 2001, and Sir
Howard had his appointment as chairman extended in March this year to help
see the organisation through its early years.

His appointment at the LSE was confirmed last night at a meeting of the
school's board. He takes over from the sociology professor Anthony Giddens.

Mr King, a former professor of economics at LSE, yesterday said: "In
appointing Howard Davies, LSE has found a new head with broad experience, a
sharp mind and a deep intellectual curiosity."

But his tenure has not been without its financial scandals. Sir Howard has
faced detailed inquiries over the FSA's conduct in regulating the
financially crippled Equitable Life, the bankrupted Independent Insurance,
mortgage endowment policies, and split capital investment trusts.

-----

Split-cap trusts scandal will weigh on the Davies legacy
By William Kay, Personal Finance Editor
The Independent, 13 December 2002

Sir Howard Davies will be remembered for two things by the regulatory
world - setting up the Financial Services Authority and hating the
knighthood he felt obliged to accept two years ago. FSA staff were forbidden
to refer to him by his full title, and it irked him that the media insisted
on using it.

But it was characteristic of Sir Howard that he realised that a knighthood
"came with the rations" for a job such as chairman of the FSA, so he went
along with it.

He came to the FSA after a brief spell as deputy governor of the Bank of
England, and consequently many people speculated that he was merely taking
time out at the FSA before returning to the Bank as governor. However, that
prospect was finally quashed last month when the Chancellor Gordon Brown
announced that Mervyn King was to be the next governor.

Instead, he has had the huge administrative and management task of moulding
the fledgling FSA into a fully operational regulatory body, complete with
the legal powers it formally acquired a year ago.

Although Sir Howard never had to grapple with the regulatory implications of
a major collapse such as Barings Bank or the Bank of Credit and Commerce
International, he can count himself unlucky that the last three years have
been dominated by the most savage bear market the stock market has seen for
nearly 30 years, with all the implications that that has had for banks,
brokers, fund managers and - worst of all - for the insurance industry.

Although one major general insurer - Independent Insurance - collapsed
during Sir Howard's tenure, his time will be closely associated with the
problems of Equitable Life and split-capital investment trusts.

Few commentators expected the House of Lords decision in 2000 that Equitable
was liable to meet its commitments to holders of guaranteed annuities
despite the fall in interest rates. The FSA could not be blamed for that,
but it was widely criticised for not immediately either telling Equitable to
cease taking new business, or telling the public not to invest in Equitable
policies. That is partly the subject of an inquiry by Lord Penrose, which is
due to report next year.

In 2001, the problems of the stock market were made worse by the terrorist
attacks of 11 September, which made the outlook extremely uncertain for many
insurance companies. The FSA's behind-the-scenes role in monitoring the
industry without causing panic has probably not been fully appreciated.

However, the harshest criticism of the FSA during Sir Howard's chairmanship
is likely its handling of the split-capital investment trust scandal, which
highlighted an unsureness as to exactly where the boundaries of its
responsibilities lay. While the FSA had no responsibility for the conduct of
listed companies such as investment trusts, it most certainly was
responsible for the way they were sold by stockbrokers and independent
financial advisers.

Rise of a McKinsey's superstar

Born: 12 February, 1951

Educated: Manchester Grammar School and Merton College, Oxford

Career: Foreign Office 1973-74. Private secretary to the British Ambassador
to Paris, 1974-76. HM Treasury 1976-82. McKinsey & Co 1982-87. Special
adviser to Chancellor of the Exchequer 1985-86. Controller of the Audit
Commission 1987-92. Director-general, Confederation of British Industry
1992-95. Deputy Governor, Bank of England 1995-1997. Chairman of the FSA
1997-2003

-----

Outlook: Howard's end is cause for celebrating an FSA job well done
By Jeremy Warner
The Independent, 13 December 2002

"The trouble with being flavour of the month", Sir Howard Davies, chairman
of the Financial Services Authority, once told me, "is that you are
inevitably tomorrow's fashion reject". They were prescient words. The FSA
started life in a welter of high praise, both for the idea of a single
regulator for the financial services industry, and for the apparently
flawless execution of the concept by Sir Howard and his team.

For a while, he was indeed flavour of the month. After years of regulatory
confusion and mismanagement, the City just loved the idea. So too did the
public as the scale of mis selling and incompetence that had been running
riot in retail financial services became all too apparent. There were
concerns. Unduly oppressive, costly and bureaucratic regulation has been a
real possibility right from the start.

Sir Howard none the less made an excellent ambassador for the idea of tough
but sensitive regulation that could both make the City a more competitive
place and improve the quality of the savings industry. His press was good,
and all around the world the FSA was held up as a model for successful
financial regulation in the modern age.

Unfortunately, regulators can never be fashionable for very long. Being
loved, respected and admired doesn't come with the territory. When things
are going right, they are accused of being an unduly costly waste of space.
When they go wrong they'll invariably get it in the neck for being asleep on
the job.

Sir Howard these days finds himself regularly accused of both. Over the past
year in particular, he has found it a pretty bruising experience. Actually,
the number of failings under Sir Howard's watch have been small by past
standards of financial regulation. There have only been three of any
significance - Independent Insurance, Equitable Life and more recently, the
split caps investment trust débâcle.

In the second of these cases, the die was cast long before the FSA came into
existence and in the third, the FSA wasn't directly responsible for
regulating the sector anyway. All the same, there has been a more or less
constant backdrop of negative PR for the past year or two. Even the City's
wholesale markets have turned against Sir Howard. A recent survey by the
Financial Services Practitioners Panel found a high degree of concern about
the quantity and cost of FSA regulation.

As it happens, the complaint is at root nothing to do with what the FSA has
or hasn't done. Rather it is the unprecedented event of a three-year bear
market. Sir Howard finds himself getting the blame both for the humungous
destruction in savings and for the systemic faults the stock market meltdown
has exposed. He couldn't in truth have done much about either, but that
doesn't stop everyone holding him to account.

Who would be chairman of the FSA? Most candidates might reasonably think it
a poisoned chalice. It shouldn't be regarded that way. On the whole, the FSA
has been a success and Sir Howard's achievement in pulling together so many
disparate regulators into a functioning whole is an heroic one. Once upon a
time, it was the US Securities and Exchange Commission that would always be
held up as the shining example of capital markets regulation at its best.
Not anymore. In the aftermath of the bubble, its reputation lies in tatters.
That's not true of the FSA, which has weathered the downturn well.

Even so, I think Sir Howard would probably agree that the FSA has become too
personalised around his chairmanship. It is rarely possible to read about
the FSA without in the same sentence reading about him, as if the FSA were
some kind of personal fiefdom. Sir Howard's move to the LSE (that's the
college, not the London Stock Exchange), is an excellent move, both for him
and the LSE, but the Chancellor might perhaps take the opportunity of his
early departure to split the roles of chairman and chief executive.

John Tiner, managing director of the FSA, is already a shoo-in for the main
job, but it would be wise to bring some grey hair, perhaps in the form of
Andrew Crockett, outgoing managing director of the Bank for International
Settlements, in on top as a non executive chairman. The FSA has already more
than demonstrated its raison d'être. Sir Howard was the right man for that
task. He has served the City and the public well, but the organisation now
needs to move on. Regulators shouldn't be celebrities. Their aim should be
that of becoming just part of the landscape, and their ambition should be
limited to competent, unobtrusive and uncontroversial regulation.

The FSA has been too much in the limelight. Splitting the top job would send
the right signals as it moves into a maturer phase of development.