We work with the 'regulator' of financial services and it is becoming more dysfunctional by the day. I think it thinks (knows?) the game is up for the Brown regulatory system.
In the last 12 months I have met FSA representatives twice, in open meetings, and challenged them on their proposals for Treating Customers Fairly (TCF) and the upcoming Retail Distribution Review. Both of these are unworkable since, for the former it depends on who defines what is 'fair' - impossible to do fairly (!) - and the latter 'designs' the market for retail financial services, also impossible. When challenged on these arguments the FSA people could not produce a sound philosophical rationale to support their proposals. They knew they were flawed, but as relatively junior people they no doubt do not have the power to do anything about it.
Ultimately the FSA rule book operates as a form of 'nationalisation lite' which goes a long way to explaining why it will, and has, failed.
It therefore does not surprise me at all that it is now carrying conflicting actions in regards to retail banking.
The trouble with the Brown type of overweening regulation is that it encourages the regulated to abandon common sense and abrogate responsibility by slavishly relying on the regulatory rules to run their businesses rather that adopting sound business practices. If some financial product passes the compliance check it must be OK. The fact that these bad rules are enforced by a Draconian and unaccountable and arbitrary fining process just reinforces the surrender of management responsibility because even if you put right an honest error you will get castigated.
So a key part of getting the banks working again is to wholesale reform the Brown inspired FS regulatory system