It was strange being at the Institute of Insurance Brokers' final Parliamentary Reception this lunchtime, not least because a few people reminded me that I was at their first such event which was way back in 1988. It was also clear that many people were there almost 'signing off' from their long association with the broker trade bodies, not least IIB president John Greenway, former chairman Graham Gomm and other other IIB luminaries such as Mike Slack.

But it was also a forward looking occasion, carefully stage-managed by Barbara Bradshaw and Eric Galbraith to demonstrate the that IIB's merger with the British Insurance Brokers Association has strengthened the broker voice in government and Parliamentary circles, underlined by the presence of Treasury minister Mark Hoban. Both spoke powerfully of the challenges facing the broker market and how important the relationship with policymakers and politicians has been and will continue to be in the future.

This was echoed by the chairman of the All Party Parliamentary Group on Insurance & Financial Services, Jonathan Evans, who highlighted the work done by the group with the broker trade bodies to shift opinion on the need for a review of the Financial Services Compensation Scheme as an example of what unified, consistent and coherent lobbying can achieve.

Of course, the broker trade bodies are not quite united as there is still some fragmentation in the London Market but in terms of the issues that matter to MPs and Parliament - largely the issues that affect their constituents - there is now a single voice and they will welcome that. 

The Treasury Select Committee has produced one of its most insightful reports this week on the accountability of the Bank of England. It puts the issue of accountability so firmly on the agenda that it actually goes much further and raises the question of whether a central bank should be independent of political control.

This has been the conventional wisdom among the major political parties for the last 15 years and when Gordon Brown moved quickly to cut the Bank free of political control in 1997 he was loudly applauded by the Liberal Democrats and quietly encouraged by the Tories. I have never supported the independence of the Bank of England and the Treasury Select Committee report's insightful analysis thoroughly vindicates that stance.

Of course the headlines this week have focused on the proposal that future governors should serve only a single eight year term - they are currently appointed for five years which can be renewed - and that the appointment should be subject to scrutiny and potential veto by the Treasury Select Committee. This has been sold by the committee's chairman Andrew Tyrie as a way of ensuring that, once appointed, the governor would be free from political interference: the rest of the report, however, sets out an aggressive agenda for future political engagement with the Bank.

Mr Tyrie summed it up well when the report was published on Monday: "Scrutiny of the Bank should reflect the needs of 21st century democracy. That means clear lines of accountability and more information made available to Parliament. It should be crystal clear who is in charge at a time of financial crisis. On all of these issues the government's draft legislation would benefit from improvement". It is in time of crisis that the select committee sets out a case for the Bank submitting to direct political control and it is these recommendations that I expect to meet the fiercest opposition from the Bank after the proposed veto on the appointment of the governor.

The recommendations on page 54 of the report do not leave much doubt as to who the select committee thinks should be in charge when there is a crisis:

"We strongly recommend that the definition of what constitutes a "material risk" for the purposes of Clause 42 of the draft Bill be contained in the forthcoming legislation. This definition should also take account of the fact that major liquidity operations by the Bank require Treasury approval--the material risk of these too must require notification to the Treasury....

"We further recommend that the Draft Bill be amended so that this early warning triggers a discretionary power for the Chancellor to be able to direct the Bank if he or she so chooses. The Bank should be required to provide such an early warning to the Chancellor as soon as the FPC becomes aware of a possibility of a material risk to public funds...

"To ensure proper accountability to Parliament, the responsibility of the Chancellor for all decisions involving public funds or liabilities in a time of crisis should be stated in the draft Bill".

These recommendations should start the debate about independence and political control of the Bank of England, one that should have been had a long time ago but which, with people pitching tents in the City to protest about their lack of influence over the financial world, is very much a debate for our time.
 

Anyone trying to keep track of the various proposed reforms of financial services regulation over the next few years will have to have eyes in the back of their head.

It seems that almost wherever you look in the UK, Europe and beyond someone is cooking up some changes. The major reform in the UK, of course, will be the replacement of Labour's tripartite regulatory system - the Bank of England, the Financial Services Authority and the Treasury - with a range of new regulatory units with new powers. A key element of the Coalition government's proposals is a substantial strengthening of the powers of the Bank of England coupled with the creation of a new Financial Conduct Authority. The FCA is the current front-runner as the name of the organisation that was originally penciled in to be called the Consumer Protection and Markets Authority.

Europe gets in on the act
The list of directives and regulations making their way through the labyrinthine procedures of the European Union is intimidatingly long. So long that a cynic might be tempted to wonder whether there isn't a deliberate policy of swamping the sector with consultations and drafts that it wearies of responding to them. There is hardly a sector of the retail or wholesale financial service market that isn't affected by this: hedge funds, derivatives, banking, insurance, pensions, securities, retail investments, venture capital and audit are all on the list.

If practitioners think that negotiating a way through this deluge is bad enough imagine the challenge facing those on the regulatory side of the fence. Financial Services Authority chief executive Hector Sants summed up the problem when he published the FSA's business plan back in March: "The 2011/12 business year for the FSA will be a difficult one. We have to ensure that we are operating effectively as a supervisor as well as taking forward the key policy initiative. The principal ones are progressing the domestic consumer protection strategy, implementing a number of key EU directives and influencing the continuing international regulatory reform agenda, all this has to be done at the same time as taking forward the preparations for a new regulatory structure. The regulatory reform agenda remains on track to ensure the new structure will be ready in 2012", said Mr Sants.

Parliamentary passage fraught with challenges
The FSA may find itself marking time if it is indeed ready before the end of 2012 because the pace of the Treasury's consultation and the increasing likelihood of a tough Parliamentary passage for the new structure suggests that we will be well into 2013 before the new regime is properly in place and operational. We are currently only at the stage where consultation has recently closed on a draft Financial Services Bill to enact the government's reform proposals. The huge number of responses (which can be found on the Treasury's website) will now be considered by a joint committee of both Houses of parliament which has been asked to report by 16 December. Faced with that deadline it is very hard to a Bill proper emerging before the end of the first quarter of 2012.

This would not leave sufficient time to debate it properly even allowing for the spill-over session in September, especially given the huge interest there will be in its progress and the vast scope there is for potential mischief making with it. As one example, you can already see Parliamentary forces being marshaled by the independent financial adviser community to use the debate to delay the implementation of the Retail Distribution Review. The influential Treasury Select Committee has positioned itself aggressively on this issue following a report it produced on RDR during the summer.

The committee asked for a delay in the timetable for implementing RDR beyond the current plan of 2013 and when this was rebuffed by Mr Sants and the FSA, the committee's chairman Andrew Tyrie went on the attack: "We need good conduct of business regulation but we have to make sure that the successor bodies are accountable and explain their decisions, not only to the industry but even more importantly to the millions of consumers who pay for their services". He said that the Treasury Select Committee planned to open a formal inquiry into the accountability of the Financial Conduct Authority - and that is before the Bill has even been presented to Parliament.

This all suggests the progress of the Bill will straddle two Parliamentary sessions and that it is likely to take about a year from start to finish, meaning implementation could drift deep into 2013.

While all this is going on the EU will be producing directives on Packaged Retail Investment products, Market Abuse, Financial Sector Sanctions, Audit Policy, Insurance Mediation, Money Laundering, Insurance Guarantee Schemes, not to mention a continuing debate about the implementation of Solvency II.

Keeping abreast of that lot will tax the best-resourced public affairs departments in the City.

Based on an article originally published in The Actuary, November 2011

The promised Consumer Insurance Bill that will reform disclosure and contract law for personal lines insurance will take its next important legislative step in the Lords next week when the Commercial Secretary to the Treasury, Lord Sassoon, proposes its committee stage scrutiny begins.

It has taken far too long and the scheme is still too tightly drawn but at last Equitable Life policyholders know when the compensation they have argued for a decade will start to flow.

I'm all for abit of clarity when it comes to the differences between the main political parties and often feel that the cosy language of recent years has blurred key policy disagreements. Look back over the history of British politics throughout the 19th and most of the 20th centuries and you will find a genre of political invective that makes your eyes water. So, perhaps we ought to thank Shadow Chancellor Ed Balls for donning the mantle of attack dog in Labour's otherwise rather tame and muted front bench team. He does, however, seem to be developing an unfortunate talent for going over the top in the rhetorical stakes.

The plans published yesterday by Liberal Democrat MP Stephen Williams - with help from corporate finance specialists Portman Capital - for a controlled giveaway of shares in the nationalised or part nationalised banks have at last stirred up the otherwise dormant debate about the government's exit strategy from ownership of banks. However, they are disappointing and fraught with potential problems.

My disappointment is partially the idea itself - a glorified giveaway - and partially its source, the Liberal Democrats.

The idea
A straight share giveaway would obviously just be a way of putting cash in people's pockets and might make them feel they had got a little something back from the banks for the huge pain they caused most of us but would achieve very little beyond that. This proposal is rather more complicated than that, however, as it seeks to put in place measures to ensure that the government recovers the £66bn it forked out on our behalf to rescue RBS and Lloyds. The trouble is the mechanisms needed to achieve this create complexities that most people will not understand. This will almost certainly lead them into the hands of financial advisers who will devise schemes for extracting cash from the shares for a fee. This already looks like a mis-selling scandal and regulatory disaster in the making.

There is a lot of naive talk around this scheme about creating a shareholding democracy, a rather barren political concept dragged up from the 1980s. It won't work. One of two things will happen. Either the scheme will be drawn up in such a way that it will be so hard to sell the shares that most people will just chuck the share certificates in the proverbial bottom draw and forget about them, or ways to sell them will be devised and the majority of shares will end up back in the hands of institutional investors. My money would be on the latter.

The missed opportunity
My real disappointment is in the Liberal Democrats for allowing this ill-formed idea to get this far with their name attached to it. It is a massive missed opportunity for them.

First, there is nothing I can see in it about addressing the structure of the banks in advance of implementing any exit strategy. Should these two institutions be broken up? Are they fit for purpose, by which I don't mean fit for a return to what they were before but fit for a new financial order where financial institutions are more responsive to the diverse needs of their customers and where they can't just shut up shop when the easy profits are no longer there? Neither of these questions seems to have been properly investigated.

Second, where are the imaginative solutions that you might have once expected from a party like the Liberal Democrats? Why no talk of mutuality? Where are the community banks the third party used to promote? These ideas briefly surfaced in the run up to the election campaign but now seem to have disappeared once again as the Liberal Democrats take on an old Tory policy and dust it down. 

Last night's announcement by the Chancellor, George Osborne, that there is to be a massive overhaul of financial regulation with the Bank of England moving firmly into the driving seat and the Financial Services Authority falling by the wayside, is vivid confirmation that the Conservatives have the whip hand in the Treasury. The new policy is straight out of their manifesto and sweeps aside any concerns the Liberal Democrats may have had about abolishing the FSA.
In the first days after the Coalition deal between the Conservatives and the Liberal Democrats was reached, the word from the Treasury was that the changes to the regulatory system would only go part of the way down the road the Conservatives had mapped out before the election. The Bank of England was certainly going to be given the key role in macro prudential supervision and a new financial crime agency was going to be formed but further dismemberment of the FSA was signalled as unlikely. In the few weeks since then it appears that Mr Osborne has asserted his authority over the Treasury - possibly helped by the sudden departure under a cloud of the highly able Liberal Democrat no 2 in his team, David Laws - and so now we are looking at a major reform of regulation.
In addition to the anticipated role in macro prudential supervision, the micro prudential supervision of banks, investment banks, building societies and insurance companies is also going to a greatly expanded Bank of England. Responsibility for economic crime will be vested in a new (as yet formally unnamed) agency, leaving a new organisation born out of the FSA to "regulate the conduct of every authorised financial firm providing services to consumers". This will be called the Consumer Protection and Markets Authority, indicating a slightly expanded - and better balanced - organisation than the Conservatives' original proposal which was just for a Consumer Protection Agency which struck me as a potentially uncomfortable place for intermediaries, independent financial advisers and insurance brokers to find themselves. The "and Markets" bit is quite important and has been casually glossed over in alot of the coverage today, so much so that many people are still calling it the CPA. The Conservative manifesto suggested that market supervision would also go to the Bank of England but, as Mr Osborne explained last night, this is being vested in the new body: "It will also be responsible for ensuring the good conduct of business in the UK's retail and wholesale financial services, in order to preserve our reputation for transparency and efficiency as well as our position as one of the world's leading global financial centres". It is this responsibility that will give it a more balanced perspective, which is very welcome.
Of course, we now face two years of change, and with it uncertainty, although announcements about the key personnel have been made very quickly and some of those people, in turn, have been quick to confirm what is going to happen on key policy areas such as the retail distribution review. There will be critics of these reforms, both political and from within the industry, but it is hard not to find oneself agreeing with Mr Osborne's preface to the key announcements at Mansion House last night: "When a system of regulation fails so spectacularly people are going to ask what replaces it. When the failure of certain banks have cost the country so much, people are rightly going to ask how to stop it happening again". There is a need to restore confidence and giving the Bank of England the pivotal role probably has the best chance of succeeding on that front.
Of course, there is alot else going on beside this: the debate about a levy on banks and longer term reform of the structure of the banking sector is still raging here and in Europe. It does seem that governments are at last, as the immediate crises subside, getting to grips with the need to put in place better systems of regulation so they don't happen again and look at ways of recovering some of the costs of sorting out the crises of the last three years.