Outlook: Not that bad

THE FINANCIAL Services and Markets Bill has had an extraordinarily bad (not to say ill-informed) press for what is in truth an entirely practical and relatively enlightened piece of legislation. So Howard Davies, chairman of the Financial Services Authority, must have been relieved by yesterday's report from the parliamentary committee which has been examining the Bill.

Essentially the legislation gets a clean bill of health. There are caveats. The committee recommends that eventually Mr Davies' position be split into the separate roles of non-executive chairman and chief executive. More importantly, it makes a series of recommendations to deal with the Treasury's original proposals on discipline and enforcement, which it thinks gave rise "to great concern". In particular it wants the Government urgently to ensure that the Bill fully complies with the European Convention on Human Rights.

But in most other respects the proposed set-up for regulation of the City and the financial services industry is broadly welcomed. So why was there such a rumpus about it all?

Concern has centred on three areas. First is immunity from prosecution for the FSA, which seems to leave few avenues of redress in cases of regulatory abuse. The thinking behind immunity is that the FSA wouldn't be able to do its job if it were constantly having to consider the possibility of being sued. It is for this reason that other enforcers - police, Crown Prosecution Service and judiciary - are also immune to legal redress, and always have been.

The committee rightly agrees that it should be no different for the FSA, even though what the FSA does is plainly rather different from that of a criminal authority. On the other hand, the City is so filled with rich and powerful organisations, that it could be argued the FSA's need for immunity is greater.

Second is the possibility of abuse in disciplinary proceedings. In this area, the committee properly recommends a series of safeguards to ensure fairness in proceedings. Some might disagree, but there is no good reason for those accused of financial abuse or negligence to have fewer protections under the law than a murderer or rapist.

The third area of concern is a more general one - that the FSA is a bureaucratic monster that will clog up the City with rules, regulations and red tape. Plainly this is a danger, but for the time being, very few of the City's big operators in the wholesale markets seem to think it much of one. Goldman Sachs cites the "enlightened" regulatory regime operated by the FSA as one of the reasons it is concentrating its European operations on London. Other foreign owned investment banks adopt a similar view.

The Financial Services Bill shouldn't be apologised for. Its early drafts contained some quite serious faults. However, the recommendations in Lord Burns' report should succeed in making what at root is a good piece of legislation, which ought to support and encourage the City's success, even better.