Risk warnings demand action

Financial Services Authority (FSA) chairman Lord Turner says politicians must take unpopular decisions to counter future financial risks when warned by the new EU systemic risk regulator.

Speaking at the City of London Corporation's annual reception for the City Office in Brussels, Lord Turner said that the success of EU reform will depend upon:

• The ability of the proposed European Systemic Risk Board to develop good quality risk analysis and the "willingness of politicians to take its warning seriously and to countenance potentially unpopular responses";
• Achieving a commonly agreed and enforced rule book. This will need a balance between political oversight and delegation to technical experts. It will require "technicians devoted to good regulation and supervision ….independent of apparent national interests (such as influencing the location of activities)"
• A robust process of peer review between different regulators that would include resourcing and supervisory processes

Lord Turner also said the structures for cross-border business need to recognise the national interests of the host country.

Act locally

Host states should have the right to receive prudential information about entire groups. They should have the power to restrict the activities of branches where risks are not being addressed by the firm or its home supervisor.