FSA short of credible candidates to succeed Hector Sants

Hector Sants said on day one as chief executive of the Financial Services Authority that he would leave this summer. So, strictly speaking, it's no big deal that one of the country's two top financial regulators is calling it a day. The problem is that the timing of Sants' departure is awful – both for the FSA itself and for the Tories, who intend to disband the organisation and hand its important supervisory powers to the Bank of England. The problem for the FSA is one of morale. Senior officials there have confessed in recent weeks that the task of hiring experienced financial hands is becoming harder. A year ago, bankers could be lured out of their comfortable habitats and cajoled into regarding a spell of public service as a career-enhancing move. Now bonuses are back and the FSA's sales pitch doesn't carry the same force, especially when senior supervisors might soon find themselves reapplying to do similar jobs at the Bank. This difficulty can only become more acute with Sants's confirmation that he's off. The Tories clearly (and sensibly) tried to tempt Sants to stay. Shadow chancellor George Osborne made a peace-making visit to Canary Wharf, preaching a message that individuals were doing fine work and that the Tories' beef was confined to the structure of UK financial regulation. But this wasn't enough to persuade Sants to rethink his plans. He is not interested in running a branch office of the Bank. So Osborne's problem is that he has to find somebody who is. There is no point in asking Adair Turner, chairman of the FSA. He is not a hands-on operator. Besides, like Sants, he appears unenthused by the idea of being a member of governor Meryvn King's crew. In practice, Osborne may have little difficulty in drawing up a list of credible volunteers to implement his reforms, both from within the FSA and without. But his other difficulty now is that he has to get on with the job immediately if the Tories win the election. The option of delaying change to the tripartite system, in the interest of stability at a time of huge regulatory reform, is disappearing fast. Soon, then, minds may turn again to the size of this task, which looks as daunting as it did when Osborne unveiled the idea last July. Pay levels within the Bank and the FSA are not remotely aligned, reporting lines must be negotiated and a workable structure created. Nothing we have heard from the Tories since last summer inspires confidence that the transition can be achieved smoothly. That is far more serious for the future of financial regulation than the departure of one individual.