1. IMF/Bank of Israel Financial Sector Conference
ISRAEL’S CAPITAL MARKET REFORMS: SUPERVISORY APPROACHES AND MANAGING CHANGE Perspectives on regulatory reform – the UK experience By Michael Foot Chairman of Promontory Financial Group (UK) Ltd

2. Why did UK change? Change in the industry
Desire for clarity of function to each agency
Bringing “muscle”/numbers to bear
Cost effective
Consistency across competing industries

3. Efficiency gains Large economies of scale
Weight of numbers in areas like IT
Focus on regulatory issues only(esp. important for banking supervisors)
Freedom from “history”, public sector pay limits etc
RESULT: Fee increases kept down to inflation despite wages growth

4. Incentives for firms
Large conglomerates got the “best deal” and were keen from the start.
Smaller specialist firms much more wary
Sectors were promised no cross subsidisation between sectors
Firms were given real governance control
Issues like Basel II proved the value of the new model

5. Incentives for staff Wider career opportunities
Better pay and prospects
Important to identify who you want to keep and who to lose
Need to offer flexible & varied career paths
But there were problems and regulator will
never match private sector pay or anonymity

6. Incentives for others For consumers
Tangible simplification of the system
Capacity to deal with consumer issues/information etc
For Government
- Must be convinced accountability still possible despite independence

7. Lessons on management & staff
Top management chosen early; 3 out 4 “stuck around to finish the job”
Create something new – not duplicate the old
Get buy-in from the staff you want to keep
Share good & bad news early & openly

8. Lessons on setting goals
Need for:
Clarity on final structure & objectives
Realism don’t walk before you can run
Governance must combine operational independence with accountability
Enough & “independent” finance
Enough time

9. The biggest problems - 1 Changing culture is never easy
Management must run the “old” and build the new. This needs support & luck
Things always take longer than you hope
Stakeholders get impatient
Transition costs money

10. Role of the central bank
Financial stability role underpinned by:
Cross membership of Boards
Formal tripartite system of BOE,FSA,HMT (which covered conflicts of interest)
Extensive practical co-operation under tripartite arrangements
Secondments of staff
Policy co-ordination

11. Problem areas
When there is conflict: monetary policy vs financial stability prudential vs consumer/investor needs Especially where an issue may be systemic (Barings vs Northern Rock) Where regulatory standards differ greatly between sectors. Home/host tensions remain

12. Potential macro problems always exist
How they are resolved will depend upon country’s history and politics In the UK the Government is clearly the final arbiter, at least while we are out of the Euro zone……