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UNCLAS SECTION 01 OF 02 LONDON 002494 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN ETRD EINV UK
SUBJECT: New Chief Regulator Faces Baptism by Fire in Month of 
Crashes, Bounces and Bailouts 
 
LONDON 00002494  001.2 OF 002 
 
 
¶1.  (SBU) Summary:  The global financial crisis, which has hit the 
UK particularly hard, has turned the spotlight on Britain's recently 
appointed financial regulator, Jonathan Adair Turner, who succeeded 
Callum McCarthy as Chairman of the Financial Services Authority. 
Turner's appointment was well-received by banking contacts and 
financial experts, who praised his competency and decades-long 
experience in working in the financial sector.  Less than a month in 
his tenure, Turner, whose formal title is Baron Turner of 
Ecchinswell, has shown a willingness to aggressively confront 
financial sector problems, including implementing a ban on 
short-selling of bonds. End Summary. 
 
Baptism by Fire 
--------------- 
 
¶2.  (U) Within days of succeeding Sir Callum McCarthy as Chairman of 
the FSA, Lord Turner issued a temporary ban on the short selling of 
financial stocks.  The short selling ban, which will initially last 
four months, was implemented in an attempt to protect the 
fundamental integrity and quality of markets, he argued.  Turner 
also said the ban was necessary to prevent the short selling from 
producing a self-fulfilling downward price spiral. 
 
¶3.  (U) Turner has been tasked by the Chancellor of the Exchequer, 
Alistair Darling, to undertake a review of all financial market 
regulations - including the operation of the Financial Services 
Authority (FSA).  He has already begun reviews into aspects of the 
credit crunch, including liquidity, banks' remuneration schemes and 
capital requirements and has said he expects a more intrusive form 
of regulation will be necessary even after the credit crisis 
subsides.   On remuneration schemes, Turner announced that the FSA 
will make banks more accountable for their bonus structures.  While 
the FSA will not regulate how much is paid, it will compel banks 
found to encourage risky actions through their bonus structures to 
hold more capital.  The FSA is also expected to begin consultation 
on plans to increase the deposit protection limit for savers from 
GBP 35,000 to GBP 50,000. 
 
¶4.  (U) Following the nationalization of Bradford & Bingley bank, 
Lord Turner said he was confident that other UK retail banks were 
well-capitalized and in a reasonable position.  He added that the 
FSA would keep this situation under review and said that it has the 
ability, if necessary, to ensure that problems were resolved without 
risk to retail depositors.  He has acknowledged that the FSA made 
serious mistakes in the past with regards to its oversight of the UK 
financial system.  However, he said that its performance over the 
past year, including its supervision of Bradford & Bingley, has been 
effective.  Lord Turner saw the failure to date of the U.S. Congress 
to pass the $700 billion rescue plan as a 'serious setback' but 
added that even without the plan, U.S. authorities had enough tools 
at their disposal to prevent major bank failures. 
 
Appointment to the FSA 
----------------------- 
 
¶5.  (SBU) In May, Chancellor of the Exchequer Alistair Darling 
announced that Lord Turner would succeed Sir Callum McCarthy as 
Chairman of the FSA. Banking contacts told Econoff that bankers were 
extremely pleased by the appointment and that he was the best 
possible person for the position. In September, Lord Turner began 
his five-year appointment. 
 
¶6.  (U) In his pre-commencement hearing (July 2), Lord Turner told 
the Treasury Select Committee that his major objectives in the first 
six months would be to play a significant role in international 
discussions of key regulatory issues and to foster a close and 
effective working relationship with the Bank of England.  He said he 
was surprised by the failings of the FSA during the crisis at 
Northern Rock and concluded that the FSA's formal processes were not 
right and that there were fundamental problems, including rapid 
staff turnover and a lack of bank visits.  However, he praised the 
FSA's internal audit report for being open about what went wrong. 
In response to a question from the Committee about oil speculation, 
he said that there was 'no large accumulation of evidence that 
speculation was playing a major role' in the rising price of 
commodities.  He added that it was difficult for any regulator to 
stop speculation as long as it was not market manipulation. 
However, he noted that the FSA was keen to expand its resources to 
minimize market abuse. 
 
Biographical Detail 
------------------- 
 
¶7.  (U) Lord Turner grew up in Crawley and East Kilbride and 
attended Hutchesons' Grammar School.  He attended Glenalmond College 
and Gonville and Caius College, Cambridge, where he took a double 
first in History and Economics and became President of the Cambridge 
 
LONDON 00002494  002.2 OF 002 
 
 
Union.  He was also Chairman of the university's Conservative 
Association. 
 
¶8.  (U) His career started at British Petroleum in 1979 and Chase 
Manhattan Bank from 1979-82 before he became a Director of McKinsey 
& Co. in 1994.  From 2000, he joined Merrill Lynch, becoming a 
Vice-Chairman.  He was Director-General of the Confederation of 
British Industry (CBI) from 1995 to 1999. 
 
¶9.  (U) Lord Turner Chaired the Pensions Committee (2003-2006) which 
was tasked to review the UK private pension system and long-term 
savings.  Its controversial final report, the 'Turner Report,' 
outlined his recommendations for the future of pensions in the UK. 
Key proposals included: increasing the state pension age for men and 
women to 68 by 2050; establishing a standing commission to monitor 
pension policy; and establishing a new National Pension Savings 
Scheme by 2010 in which people who did not have a workplace pension 
would be automatically enrolled. 
 
¶10.  (U) He was also Chair of the Low Pay Commission, which advised 
the government on minimum wage baselines, from 2002 to 2006.  In 
January 2008, he was appointed Chairman of the government's Climate 
Change Committee, which provides independent, expert advice on how 
the UK can best meet its climate change goals.  Turner will remain 
as Chair until the new year, at which point he will step down. He 
lectures part-time at the London School of Economics. 
 
¶11.  (U) In September 2005 he was created a life peer as Baron 
Turner of Ecchinswell in the County of Hampshire in recognition of 
his public service. 
 
 
TUTTLE