Inside the world of business
Lessons for Ireland in Osborne's reforms
THE ANNOUNCEMENT by new British chancellor of the exchequer George Osborne that he is to abolish the Financial Services Authority (FSA) signals the most dramatic overhaul of Britain’s financial regulatory system in 13 years.
The FSA will be replaced by a prudential regulatory authority, a subsidiary of the central bank, while Osborne is to set up a financial policy committee at the bank and a consumer protection and markets agency will be established. In effect, the regulatory system set up by Gordon Brown in 1997 is being dismantled.
The overhaul of British financial regulation has obvious parallels with our own plans for regulatory change. Ireland is also returning to a more centralised system, re-merging the Central Bank and the Financial Regulator.
There is one big difference however. While Ireland is at pains to distance itself from those in charge during the run-up to the banking crisis, Mervyn King, the man at the helm of the Bank of England during the financial crisis, has emerged as the big winner in the shake-up of financial regulation, becoming “one of the most powerful central bankers in the world” according to the Financial Times.
Former Central Bank governor John Hurley must be wondering where it all went wrong.
Lord King has had his fair share of criticism – mostly for failing to cut interest rates and failing to spot the housing bubble, as well as his handling of the Northern Rock crisis which eventually led to the lender being nationalised.
But what differentiates King’s position from that of Hurley is that the FSA was genuinely a separate body from the Bank of England, a distinction that has allowed the governor to disown responsibility for regulatory decisions.
This demarcation had physical presence. The FSA was located in Canary Wharf, away from the Bank of England’s headquarters in the City, unlike the situation in Ireland where the Central Bank and the Financial Regulator shared the same building, epitomising the blurring of boundaries between the two institutions.
The failure of the Irish regulatory system properly to delineate the responsibilities, functions and identity of the Financial Regulator and the Central Bank was a contributory factor in the breakdown of financial supervision and responsibility in Ireland. As the Department of Finance awaits the Central Bank Reform Bill to go through its final stages, it is imperative that the specific functions and responsibilities of the new Central Bank be outlined in order that proper responsibility and accountability for regulating the financial system can take place in the future.
Daft slice of Euro fudge
The extent of the fudging going on as Europe tries to present a more unified economic front was clear for all to see this week in the wake of the leaders’ summit. In the Irish context, the pointlessness of the proposed “European Semester” under which member states have to present budget plans to the European Commission before the national approval process gets under way is alarming.
It is envisioned that the draft 2012 budget will be submitted next spring. Not only will the ink barely be dry on the 2011 Finance Act at this point, the Estimates process which leads up to the budget will be but a twinkle in the eye of the Department of Finance.
It is very hard to see what could be usefully said about the 2012 Irish budget in spring 2011. And the idea of holding the Government to account the following December over whatever generalities they utter at the point seems daft. Hopefully the planned reform is more relevant and effective in the context of the budgetary calendars and processes of the larger euro zone states.
Not quite up to speed
The regular burbling of “smart networks” chatter from Government sources combined with UPC’s attempts to market itself as the fastest internet provider in town might give casual observers the impression that Ireland’s broadband handicap is not what it was.
Official statistics from the Commission for Communications Regulation (ComReg) don’t exactly obviate Ireland’s reputation for being a little slow, however. ComReg’s latest quarterly update says only 10 per cent of residential users and 1.3 per cent of non-residential users (excluding large firms who use leased lines) have contracted speeds of more than 10Mbps.
Crucially, Irish broadband users are much less likely to have speeds above 10Mbps than other European countries. While the proportion of fixed retail broadband subscriptions in the 2-10Mbps range is similar in Ireland as across the EU – at about 60 per cent – only 8.9 per cent of Irish fixed retail subscriptions are faster than this.
On average, more than one in five fixed-line subscriptions (23 per cent) in EU countries are faster than 10Mbps.
In Ireland, 31 per cent fixed-line broadband subscriptions are below 2Mbps compared to the EU average of 16.2 per cent.
While broadband penetration rates are improving, Ireland is still playing catch-up on speeds. Bear in mind, too, that the regulator’s data is based on contracted speeds rather than actual speeds. It’s hard not to conclude that the holders of Ireland’s 1.5 million broadband subscriptions deserve better. We will know that Ireland has upped its broadband game when ComReg redefines its categories to account for fibre broadband speeds of greater than 100Mbps, not 10.
Next week
The Central Bank will unveil its proposals for the new regime on banking supervision as Irish Nationwide Building Society submits its viability plan to Government.
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