UK regulator's future up in the air as chief takes flight

LONDON BRIEFING:Hector Sants' decision to quit throws the already uncertain fate of the FSA further into confusion

HE IS hardly a household name, despite three years as chief executive of Britain’s financial regulator. But the fact that Hector Sants was propelled to the top of trending topics on Twitter yesterday, albeit briefly, is a telling indication of the widespread shock that greeted news of his departure.

The former banker’s decision to quit throws the already uncertain future of the UK Financial Services Authority (FSA) further into confusion and, with a general election just months away, creates difficulties in equal measure for British prime minister Gordon Brown and Conservative leader David Cameron.

Sants said in his resignation statement that he had always planned to serve a three-year term as chief executive and he was merely sticking to his original timetable. But the timing of his announcement, with no successor in place, is questionable and certainly does the FSA no favours.

The Conservatives have already made it clear, in the very likely event that they form the next government, that they will break up the financial watchdog, ending the much-criticised tripartite system of supervision between the treasury, the FSA and the Bank of England. The FSA’s role in overseeing the financial markets would be handed back to the central bank, and there had been talk of Sants, or possibly the FSA chairman, Lord Turner, being asked to take on the role of third deputy governor of the bank, with responsibility for financial markets.

Sants has been critical of the Conservative Party’s plans, which he described as “a return to the dark ages” and which he fears will undo even the limited reforms that have been achieved in the wake of the financial crisis.

The Tory plans were unveiled by shadow chancellor George Osborne last August to a somewhat lukewarm reception in the Square Mile. Since then, life at the FSA’s Canary Wharf headquarters has become even tougher: working for a doomed organisation can’t be much fun and the uncertainty surrounding its future role will have made it harder for Sants and his team to recruit the sort of high-flyers from the City that are needed to police the markets effectively.

The FSA board is likely to face similar difficulties in its search for a suitable replacement for Sants. Despite a salary of £623,000 (€709,000) plus a bonus of £130,000 (which Sants waived last year), who would want to jump ship for an organisation that stands every chance of being disbanded in a few months’ time?

Sants has said he will stay on at the regulator until the summer, but is likely to spend much of that time on “gardening leave”.

Reviews of his performance at the FSA are mixed. Sants’ tenure covered the most turbulent time in the history of financial markets, with the Northern Rock crisis erupting just weeks after he stepped up as chief executive. He has come under fire for the regulator’s failings and its disastrous “light-touch” approach to regulation before and during the crisis.

Sants has admitted failures but was also able to dodge some of the criticism because, although he joined the FSA in 2004, he did not take over the top job until 2007, instead serving as director of wholesale and institutional markets.

He has won some admiration for his increasingly tough stance and in a speech last March gave notice that the regulator would be far more stringent in its policing of the City. “People should be very afraid of the FSA,” he warned.

All of this may have been too little, too late, but at least it was moving in the right direction. And there is no doubt that Sants has recruited a high calibre of staff to the FSA, experienced practitioners capable of policing their counterparts in the Square Mile.

When he joined the FSA in 2004, Sants wrote of the sense of duty that drove him to make the switch from banking: “As a Christian, I feel strongly that in the latter part of one’s career, it is important to give something back to the community.”

He has given no indication yet of his next move, but it is thought unlikely that the 54-year-old poacher-turned-gamekeeper will turn poacher again, although there would be no shortage of takers in the City.

Sants will have earned his millions during his glittering career as a banker and now some form of public service looks likely.

In the meantime, he will have plenty of time to tend to the organic garden at his Oxfordshire home.

Fiona Walsh writes for the Guardiannewspaper in London