The Financial Services Authority is meant to be the City's watchdog but "devastating" internal documents reveal it has secretly co-ordinated high-level lobbying strategies with the industry it is supposed to police.
The documents come from previously restricted minutes of meetings between the FSA and 13 powerful financial industry trade bodies, including the British Bankers Association (BBA) and the Association of Financial Markets in Europe.
The redacted details of 16 meetings – under the trade associations consultative committee (TACC) – between 2006 and 2011, reveal several strategies....
• The FSA discussed blocking new European rules to bring transparency to commodity markets through the European Securities and Markets Authority's commodities task force.
• The authority discussed the best time for the industry to start lobbying on new EU financial transparency and investor protection rules via the directive known as markets in financial instruments (Mifid). It advised that "industry should engage as early as possible and at all levels".Please re-read the highlighted text because here is a financial regulator that is explicitly a member of the Opacity Protection Team. FSA thinks that opacity which allows banks to hide their bad behavior is a good thing.
As a member of the Opacity Protection Team, it is not surprising that the FSA did not prevent the Libor scandal.
The Treasury select committee member John Mann described the disclosures as "devastating" revelations of "the real inner workings of the banking sector".
He said: "The regulator and its head, Lord Turner, have paid lip service to their designated role of regulating the industry.. Instead, they have seen regulation as a negotiated partnership, where cosy deals are reached and where it is hard to see who is the poacher and who the gamekeeper."However, it is easy to identify the loser: taxpayers and non-bank market participants.
Karel Williams, professor of accounting and political economy at the University of Manchester, said policymakers were much too close to the industry they were regulating.
"Regulation becomes a process of negotiation without any possibility of regulators maintaining an external, adversarial, relation," he said. "Much of what is happening in the UK is undisclosed and non-transparent lobbying."The only way to prevent this happening in the future is to require banks to provide ultra transparency and disclose on an on-going basis their current asset, liability and off-balance sheet exposure details.
Market participants can assess this information and exert the discipline on banks that regulators are clearly not up to doing.
The closed TACC meetings are supposed to provide a forum for the industry to highlight emerging risks to the financial markets. But in several instances lobbying tactics were discussed and formulated, with regulator members offering advice.In short, the TACC meetings are yet another way that the industry captures the regulators.