FSA chief executive Hector Sants said this morning that the City should prepare itself for an era of much more stringent regulation. To the sound of stable doors being shut behind bolting horses everywhere, Sants suggested that public opinion demanded a much tougher and more proactive approach from the FSA. ‘People should be very frightened of the FSA,’ he insisted, raising the prospect of gangs of vigilante number-crunchers cruising the Square Mile spoiling for a fight. We can see his point – in recent years the FSA was clearly about as intimidating as a soggy balance sheet. But a populist FSA could be frightening for all the wrong reasons...

New boss Sants is on a mission to beef up the FSA to meet the demands of this new era, hiring an extra 280 specialist staff (which will increase headcount by 30%) and adopting a harder line. The new FSA will see a ‘fundamental change’ in strategy – compliance will no longer be a box-ticking exercise, with firms judged on the consequences of their actions rather than their ability to play within the rules. ‘We will use all our powers, including criminal prosecutions, to deliver our mandate,’ he growled, with the kind of menace that only ex-bankers-turned-regulators can muster.
Sants is basically admitting that the FSA’s much-vaunted principles-based approach, which the Government has boastfully held up as a model for regulators all over the world, has been a dismal failure in the last few years. Although he seemed to suggest that this was due to individual failings rather than the FSA’s ineptitude: ‘I continue to believe the majority of market participants are decent people,’ he said today. ‘However, a principles-based approach does not work with individuals who have no principles.’ Get him.
The worry in the City will be that the FSA lurches from one extreme to the other – from light-touch to over-bearing. Sants does seem aware of this concern, to be fair, suggesting today that ‘too aggressive intervention will stifle innovation and... reduce risk to a level that inhibits economic prosperity’. But with the FSA clearly determined to rehabilitate its battered public reputation - particularly as reports suggest that the Tories are considering scrapping it if they win the next election - headline-friendly prosecutions are almost inevitable (although given the apparent difficulty of convicting people, the actual consequences might be minimal).
And either way, you might argue that all this is about five years too late..