Davies Departs, Brown says "goodbye" to protege.

It was one of Gordon Brown's defining moments when he was able to put into place at least one of his financial sector reforms as soon as possible after his appointment as UK's Chancellor of the Exchequer when his New Labour government swept aside nearly two decades of centre right politics.

Brown had long championed three significant financial sector reforms: first was the destruction of offshore centres (he is still fighting that one), second was to ensure that the blame for economic woes fell somewhere other than on the Treasury so he passed to the Bank of England the power to autonomously control interest rates (the power is more illusory that Brown would like others to believe and he continues to take credit for good economic conditions whilst blaming everyone else if things go awry) and to create a single regulator for the UK's financial services industry.

The passing of responsibility for interest rates was done within days of Brown taking office. The Bank of England Act a few weeks later removed all regulatory responsibility from the Central bank and vested it in one of the pre-existing regulators. His next move was to appoint his old pal Howard Davies to be chairman of the new regulator.

This was a little sneaky: shortly after the Labour victory, in one of a wave of appointments of Friend of Tony (Blair) or Pals of Brown to high ranking and influential positions, Davies was appointed to be chairman of the Securities and Investment Board, a regulator created under the Financial Services Act 1986. Then it was announced that, under the regulatory regime as it would become, the SIB would become the new regulator and all the others would be subsumed within it.

What happened next is an object lesson in presuming the will of Parliament. The SIB changed its name to the Financial Services Authority. It moved to a tower in London's Docklands. All the former regulators formed contracts with what was now the FSA and then moved into the same building. The FSA began to issue letters, press releases and generally to take on a life of its own, even though there was no statutory framework to enable it to do except in relation to those businesses originally regulated by the SIB.

Davies became able to move the regulatory goalposts by pronouncement. His speeches were pored over for any indication as to how the FSA would apply the regulatory regime after the law was at last in place.

But the legislation was - and in many ways remains - a shambles. It took nearly four years for the Act to be passed and to come into force.

In that time, Davies headed another of Brown's pet projects, the Financial Stability Forum. Now chaired by a representative of the Bank of International settlements, the FSF has only one purpose, to destroy offshore centres.

Davies has announced he is leaving. But not yet. In October 2003 he will become Director of the London School of Economics. He will leave the FSA when his successor can be found.

Not that that is likely to take long. It is inconceivable that Davies had not warned Brown that he had had enough of travelling to Docklands and further afield as head of the UK's biggest regulator. He has recently displayed academic aspirations with lengthy papers that can be downloaded from the FSA's website - where he finds the time to research and write them is anybody's guess. So his departure will not have been a surprise and there is no doubt that Blair and Brown have another pal waiting in the wings.

In the meantime, a small amount of humour arises from Her Majesty's Treasury's Press Release: Davies was knighted a couple of years ago. He was adamant that the honour was accepted more for his wife than for himself and that he did not want to be known as "Sir Howard." Sceptics abounded. An honour is the almost inevitable follow up to the appointment of a Friend of Tony or a Pal of Brown. It would have been expected.

The Chancellor, who famously turns up for black-tie dinners in a lounge suit because he wants to display himself as an ordinary person, either forgot his old pal's wishes or is at last learning that you cannot sweep away all protocol. The press release quotes him as saying "That the FSA is now widely acknowledged as a world leader in its field is very largely thanks to Sir Howard's drive and vision."

And, one presumes the staff and executive of what were nine former regulators, but then again, they are not Brown's friends......