Financial authority must have teeth

TALK is cheap and actions speak louder than words.

In that case the launch of the Irish Financial Services Regulatory Authority in the Mansion House last week was only part one of the saga.

Those at the launch talked the talk in great style and the public relations was top notch on the day.

The spin was pretty consistent from start to finish bringing into being the new regulatory body, the source of fundamental disagreement between the two political parties in power at the very outset.

It is part of the folklore on the FF/PD alliance that the indomitable duo were at daggers drawn over the configuration of the new authority. Tánaiste Mary Harney and her friend and colleague Minister for Finance Charlie McCreevy, had different views on how the financial services sector ought to be policed, but buried the hatchet and came up with the Financial Services Regulator, to give it its less cumbersome title.

Despite the PR however, it is fair to say that those close to the action are still highly sceptical about the ability of this new authority to police the financial services sector on the one hand and protect consumer interests on the other.

Finance Minister McCreevy sees the role of the new body as being there to protect the economy, which is heavily reliant on a competitive financial services sector to keep the engine well oiled.

That’s the good hard- nosed view, typical of the minister who prides himself as a man who shoots from the hip. It is hard to argue with his particular view of the new authority.

Without a vibrant financial services’ sector the ability of the economy to thrive is severely constrained.

So far so good. But the Tánaiste in her remarks painted a very different picture of her expectations.

“The consumer is at the heart of financial regulation for the first time: in law, in organisation and in resources,” she said.

She went on to say that in putting the new framework of supervision together the government took the view that the “public interest and the consumer interest are ultimately at one”.

It was ironic therefore, the Tánaiste did not see her way to putting some strong consumer voice on the board and she got a bit tetchy when pressed at the launch as to why she refused to consider the application of Brendan Burgess, well known for his campaign to put the skids under Michael Fingleton, the powerful boss of Irish Nationwide Building Society.

While uncomfortable with the question the Tánaiste skirted round it nicely and the matter was dropped.

However, the consumer issue was one of the main reasons why this new body was put in place in the first instance.

As a woman with strong convictions about how things should be done Mary Harney took a lot of persuading to accept that the Central Bank should still sit on top of the new regulatory body.

This was especially so given the dim view taken of the Central Bank’s perceived complacency and weakness in the wake of the DIRT scandal and the Ansbacher debacle which saw the great and the good of Ireland salting money away in the Cayman Islands to dodge their tax obligations.

That in a nutshell is the backdrop to the new authority. Mary Harney is understood to be well pleased despite the catchall nature of the new body.

The fact that many in the Central Bank are uneasy seems to be a minor consequence of the shake up that has taken place in the areas of financial regulation and consumer protection.

Their unhappiness is understandable given the loss of direct power involved under the new structure. If it is just sour grapes and this new complex structure proves its worth then there can be no complaints.

However, if the concerns of the central bankers are proved correct swift action will be required. Otherwise we risk doing serious damage to key economic building blocks.

Too much is at stake here and the last thing we want from a consumer perspective is to see the credibility of the banks and other financial institution undermined further.