Sir Howard Davies 51, British Why He Matters: One of Europe's most powerful financial regulators Location: London

Posted Sunday, Dec. 1, 2002; 15.43GMT
Davies is one of the highest-profile people on this list — and probably the most accountable. He oversaw the 2001 formation of the Financial Services Authority (FSA), a mega-agency that regulates all British finance and which replaced a cluster of uncoordinated agencies. In doing so, Davies blazed a trail: once-separate insurance, banking and thrift regulators in several countries, including Germany and Japan, are now merging into single entities. In places like Hungary and Estonia, they are even naming themselves after the FSA. "We unwittingly created an international brand. Sadly I didn't copyright it," says Davies, who accepted a knighthood but regularly threatens to fine staffers one euro every time they call him Sir Howard rather than just plain Howard.

The type of regulation he practices, based on a hard-nosed assessment of risks rather than rigid rules, is also pioneering. For example, while German regulators set a ceiling for the percentage of equities insurers are allowed to hold, Davies allows British companies to decide on the level themselves — and then makes sure they can withstand various disaster scenarios. Davies himself describes his approach as "attempting to do Goldilocks regulation — not too hot and not too cold." It aims to maintain London's competitiveness while protecting consumers, and the City is pleased. "He certainly commands respect," says Roger Brown, executive director of the British Bankers' Association.

	It's very, very difficult to explain to people that you are reducing the probability of failure — but not reducing it to zero..

But he's regularly knocked by consumer groups and Parliament; unlike many civil servants, he is directly accountable to Westminster. He's taken heat for not doing more to protect policy holders at British insurer Equitable Life, which has teetered for two years and is struggling to meet minimum capital requirements. Most recently, he has been under fire for the troubles of highly-leveraged investment "split" trusts, which were aggressively touted to investors as a safe bet but ended up losing as much as 90% of their value. A Tory M.P. last month accused him of being "asleep on the job."

Now Davies must tackle public expectations about what a regulator can and cannot do. "It's very, very difficult to explain to people that you are reducing the probability of failure — but not reducing it to zero," he says.

So what's Davies's biggest concern? With a war in the Middle East looming, "a sharp further downward movement in the market would be worrying."

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