Regulatory Column

financial regulation—does the system work?

The events surrounding the first modern run on a British bank have put the Financial Services Authority (FSA) rudely back into the spotlight after a period of quiet reorganisation and reflection by the UK’s financial regulator. Until the Northern Rock drama unfurled, the FSA was confidently rolling out its new risk-based approach to regulation while streamlining its workforce. The reforms were generally met with approval and the FSA was praised for the new emphasis on the “light touch” and for its devolution of responsibility to the regulated community. At the same time, London was busily being feted as the world’s No 1 financial centre and all seemed well from the regulator’s vantage point in Canary Wharf.

The French have a particular saying involving soup and the devil. The gist is that once you have made yourself a nice soup, Beelzebub has a habit of spoiling it. In essence, the Northern Rock affair seems to have been a