FSA’s tough stance benefits consumers
Posted on November 16th 2009
The news last week that the FSA has blocked a number of new lenders entering the market sounds counter-intuitive. When the market is crying out for additional liquidity and competition, why would the FSA take such a stance? Having just gone through the FSA application process successfully, there is no doubt that the bar has been raised significantly and the FSA sign-off process is much more rigorous than it has been in the past.
Hector Sants comments that senior executives need to prove that they have learned lessons from the crisis and that they can adapt to this new financial era sets the tone for future new entrant lenders. Simply replicating old business models that in many cases failed when funding dried up simply won’t cut the mustard in 2010 and beyond.
New lenders whether they be deposit taking firms or non-banks will have to do things very differently if they are to be successful in gaining authorisation. In my opinion the top three areas of change will need to be:
1. Senior execs will need to prove that the business model is not reliant on short term funding that is susceptible to market shocks and that sufficient capital is held on the balance sheet to ride out such events
2. Risk management will have to be at the heart of the business to ensure consumers are not disadvantaged by market volatility
3. Senior execs will have to prove competence to perform their function and that lending mistakes of the past are not replicated
In my view it is a good thing that the FSA are making it much tougher to get a license and ultimately the consumer should benefit from this stance. The acid test will be whether any new lenders can prove that they are fit for this new benchmark. The market desperately needs new money and competition so let’s hope it is not too long before we see some movement.
