FSA Davies - C bank supervision not more effective

"The argument has little or no validity in most developed economies, where the independence of non-central banks financial services regulators can be achieved - as, for example, in the U.K. - through legislation that draws an appropriate balance between independence and accountability," Davies told a banking audience.

"There may be some justification in this argument in some developing and transition countries, where the central bank stands - almost - alone as an institution with independence from political interference," Davies said.

In these circumstances the effectiveness of regulation could be compromised if the function were removed from the central bank, Davies said.

German parliament is currently discussing a proposal by German Finance Minister Hans Eichel that aims at combining Germany's three independent supervisory bodies for the banking, insurance and securities-trade industries into one watchdog. The proposal also foresees a removal of the responsibility for banking supervision from the Bundesbank to the new super-watchdog.

The FSA - in existence since Saturday - has combined 10 formerly separate regulators into one superagency, including the Bank of England's supervisory responsibility. It has also taken over the U.K. Department of Trade and Industry's responsibility to investigate insider dealings.

While the FSA is seen as a role model for reforming financial supervision in continental Europe, euro-12 central bank officials, including European Central Bank President Wim Duisenberg and Deutsche Bundesbank President Ernst Welteke, have said banking supervision should stay with the central bank.

Davies noted that the FSA so far hasn't been criticized for not being independent enough of government influence.

"We haven't typically been described as under the Treasury's thumb - indeed I cannot recall that point being made," Davies said.

The new agency faces more of a risk that a single regulator responsible for the whole financial sector may be an "over-mighty institution" that represents too large an agglomeration of power and responsibility, Davies said.

"This is a point to which a regulator must give serious attention," Davies said. "I hope that our structures, with separate decision-making bodies for all disciplinary cases, with statutory consultation processes and statutory consumer and practitioner panels, will help us to preserve a reputation as a balanced and reasonable exerciser of our powers," he said.

In reference to the German reform proposal, Davies said that the U.K. model isn't the only workable solution and that different regional conditions, systems and experience must also be taken into account.

Davies welcomed proposals by the European Parliament to change the European Union's prospectus and market-abuse directives. The current draft for the prospectus directive foresees a big increase in costs for small companies seeking to raise funds on national stock markets.

The proposal keeps the cost for shelf-registration for small firms quite high, Davies noted in remarks to reporters after his speech.

Davies also said the E.U.'s market-abuse directive needs to include a so-called regular-user test similar to the U.K.'s regulation, which takes into account that regular users may have different expectations for different markets, such as the commodities market and the equities market.

"We are keen to see some differentiation," Davies said.

He also noted the current absence of a common view of what is market abuse and insider dealing and added it would be useful if the directive included an official definition.