Last week I wasn’t invited to a reception. Nothing unusual, over the last five and a half years I have not been invited to hundreds.

Ignored

What was different in this case was I got an uninvitation. I don’t mean in the sense of an official card with “MrX would welcome your non attendance at a receptions to celebrate… please confirm on the attached rsvp card that you will be somewhere else that evening”. Rather two invitations for other people were sent to my office in error. I consider that a far more subtle approach.

There are many things in life we are not invited to. In my case these include: Mensa (too stupid), Experienced investor funds (too poor), and the Olympics (too unfit). Generally even those to which we find ourselves asked give us the choice to say no. Regretfully, however, there are those things which we find we are at, despite never realising we had been invited in the first place.  The latest is the credit crunch.

I have written about this and its regulatory impact over the last year and make no apologies for doing so again. I do however have one or two objections I would like to get off my chest.  Firstly the name “credit crunch”. This makes it sound like a breakfast cereal rather than an economic crisis. I fear that, in years to come we will have “credit crunch lite” and “bite sized credit crunch” used to describe lesser economic blips. Thank goodness such abuses of the English language did not occur in the 1930’s and the Great Depression was not followed by the “Not So Great Depression”.

My second objection is that the Credit Crunch now has a birthday. We have just “celebrated” its first anniversary. This allegedly was the 9th August 2008. One year previously  the short-term credit markets had frozen up after French bank BNP Paribas suspended three investment funds worth a total of 2bn Euros.

Also that day the European Central Bank pumped 95bn Euros into the banking market to try and improve liquidity. In fact, whilst this day was significant, it was merely one in a series of events, both before and after, which awoke the world to the mess it was in.

One could just as easily have chosen 2nd April when the US firm New Century Financial, which specialised in sub-prime mortgages, filed for Chapter 11 bankruptcy protection and cut half of its workforce.  Indeed if we have to have a date, let’s make it when broadcaster and former fund manager Jim Cramer had his rant on CNBC. If you haven’t seen it yet go onto YouTube and type in “Jim Cramer meltdown”.

In any event, whatever date you choose or name you pick, the reality is that we are enduring an event we don’t want to be at. To misquote Warren Buffet, this is like hell; it was really easy to get into but near impossible to get out.

As a regulator, the FSC has spent a considerable amount of time looking at what supervisory lessons we can learn from what has happened. Of particular interest was the FSA’s internal report on regulatory failures in the supervision of Northern Rock. Within the FSC we have used this report as the basis of a review of ourselves.

The purpose of this review was to ascertain whether the processes at the FSC could result in the same or similar errors to those that occurred at the FSA.  Even where this was not the case, were there improvements we could identify and implement?

Several areas for improvement were identified and have been actioned.  Some were simple, such as improving the time between meetings and sign off of the minutes. Others such as the introduction of a formal risk committee have resulted in changes throughout the organisation.

The new committee will not only regularly review the supervision of certain firms but also look at what more general risks have developed or changed and how they have affected to finance sector or parts of it.  This may be changes in the economic environment, competitive environment, international regulatory developments or issues experienced by similar firms in other jurisdictions.

The committee conclusions may not only result in changes in our approach to supervision but also cover how we can remain fit for purpose as a regulator as the economic cycle changes. As such it will supplement our continuous improvement processes which look across the Commission at ways we can improve our efficiency and our service to our stakeholders.

We have also further enhanced our ongoing risk assessment of firms. Risks experienced by a firm may escalate, as they did in the UK with Northern Rock, and it is important that we have established a process to identify any escalation and react accordingly.  We are also currently conducting an internal review to ensure that these assessments remain consistent across all divisions.

Some issues will have an impact on firms. This primarily covers the area of corporate governance and role of independent non executive directors. A consultative paper on this is being prepared to allow the industry a full opportunity to express their views.

The use of reports into where others went wrong and hopefully learning from the others mistakes is a key element of the process of improvement. As regulators we have no shortage of these at the moment. The recent report by the UK Parliamentary and Health Service Ombudsman into Equitable Life provides further help in this regard. The clue to the Ombudsman’s view is in the title of the report. “Equitable Life: a decade of regulatory failure” hardly leaves room for ambiguity.  In this report the Ombudsman found some failings similar to those in the case of Northern Rock, but some new ones. Again we are using the findings and recommendations to test ourselves and to act accordingly.

No doubt there will be others. The global financial system remains imperfect. Even some lessons learned today by the finance industry will be forgotten when the markets improve and identifying and managing risks cease to be the industry’s main occupation and the pursuit of profits and bonuses return. For regulators the lessons must be remembered.

The credit crunch may be the event from or in hell, but we at least can try and make sure we are uninvited to the next.