Further memorandum from Tony Shearer
1. My experience with the FSA is that they:
(a) approved a change of control of Singer &
Friedlander to Kaupthing even though they were pointed to the
information that would indicate that Kaupthing was not "fit
(b) did not properly monitor Kaupthing Singer
&Friedlander when there was adequate information that they
(c) did not support the KS&F management who
were trying to do the right thing;
(d) focus on the trivia and minutiae rather than
their main objectives;
(e) do not distinguish between those who make
genuine mistakes and those who couldn't care or worse;
(f) go for the easy targets; and
(g) employ people who are nether sufficiently
able or experienced.
2. Who knows what might have happened if
any one of the "Protectors" (those such as auditors,
regulators, lawyers, non-executives, corporate finance, rating
agencies who are supposed to help protect stakeholders) had done
their job? The fact is that they all failed to do theirs.
3. The Protectors failed because:
(a) organisations such as the FSA did not have
the right quality of people with the right experience. They need
better people who are focused on their main objectives, rather
than another re-organisation; and
(b) the culture of "the City" is wrong.
It is about earning large fees mainly from transactions. Too often
they are not there to serve the stakeholders, but to earn money.
4. Big and/or fast growing organisations
are very risky. Businesses with many decision takers who can each
materially affect the balance sheet or profit and loss account
(as is the case for banks and many financial services organisations)
need very good, proven systems and controls. These systems and
controls are very difficult to establish, and it takes more than
a couple of years to do so. Merging the likes of Merrill Lynch
with Bank of America, or HBoS with Lloyds cannot be the right
5. Deposit-takers should not be mixed in
with high risk taking activities.
6. Published accounts contain so much information
it is almost impossible to find what is important. Accounts should
be for the key financial information. The likes of International
Financial Reporting Standards are distractions that earn nice
fees for the accountancy firms.
7. The cost of "the City" is too
large, and encourages excessive risks to be taken with capital
in order to obtain what are seen as appropriate rewards for that
8. The returns that are expected from capital
are too often unrealistically high, and this encourages excessive
risks to be taken.
9. Too many investment managers have failed
to do their jobs. How can those on money purchase pensions get
a decent investment manager when so many of them have been shown
to be inadequate? What are the implications of this for the future
pension provision for this country and the reliance on State pensions?
10. Too many of the best brains go into
being lawyers, investment bankers, accountants etc because that
is where the rewards are. These brains are needed in industry,
commerce, retail, etc.
11. Too many of the regulations and laws
are influenced/created by advisers/protectors; these regulations
and laws usually require companies to obtain their advice, and
this encourages more regulation, and more cost.
12. Too many of those who have failed the
system still seem to be around in the system. The Government and
the FSA seem to be relying increasingly on people who came from
the failed organisations. For example there are a lot of ex-Merrill
Lynch and investment banking people about, and the recruiting
for UK Financial Investments Ltd seems to have been carried out
by one of the traditional Head-hunters (Head-hunters have hardly
done a great job in getting the right Executives and Non-executives
13. Very few people in Government or the
system have acknowledged their responsibility and resigned.
14. The lessons from the Banking Crisis
have far wider application than to Banks and Financial Services.
They relate to the way that "the City" has worked, its
culture and its role in providing a place for arms-length investors
(such as pensioners and future pensioners) to risk their capital.