Watchdog tells bankers -- be very frightened

By Huw Jones

LONDON (Reuters) - The Financial Services Authority (FSA) warned bankers should be "very frightened" of the watchdog, as it vows to carry out increased vigilance in its role, spelling the end of the hands-off self-regulation era.

The FSA would judge firms on the outcomes of their actions not on simple box-ticking, its Chief Executive Hector Sants said in a speech to members of London's financial community at ThomsonReuters offices in Canary Wharf, London.

"There is a view that people are not frightened of the FSA. I can assure you that this is a view I am determined to correct. People should be very frightened of the FSA," he said.

Self-regulation was the core mantra of British and U.S. policymakers during the de-regulation boom of the past two decades, but Britain's multi-billion bank bailout has caused a rethink of that approach.

Sants said this underlying philosophy was wrong and the mindset must change to the extent of intervening in how major banks handle risk, set aside capital and appoint top staff.

"The oversight process will have to be more rigorous and there will be greater constraints on the amount of risk they can carry," he told Reuters in a separate interview.

A pilot programme whereby the FSA calls in candidates for senior banking appointments for an interview on their competency will be made permanent and refined, Sants said.

"It's reflective generally of our intention to take forward a much more intensive supervisory model where we do take more risk, in sense we will be making more judgements about the future," Sants added.