To be effective, a financial regulator needs three things: a sound operating structure; sensible procedures and competent staff; and credibility so that wrongdoers are properly punished and others deterred. There are worrying signs that the Financial Services Authority (fsa), now Britain's only financial regulator, is falling short on the latter two counts. This week an independent tribunal made stinging criticisms of the agency's handling of a case involving the alleged mis-selling of endowment mortgages by Legal & General, a big insurer (see page 81). While accepting the fsa's verdict that there had been mis-selling, the tribunal nevertheless lambasted the way the regulator reached its decision to fine the insurer £1.1m ($1.9m). This embarrassing ruling came only weeks after the FSa reached a settlement over a long-running scandal involving so-called split capital investment trusts. Consumers lost more than £6oom on funds that were sold as low risk,then turned out be high risk. After months of obstructing the regulator, 18 banks and brokers agreed to pay a modest £194m in compensation, but admitted no guilt.
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