Treasury picks Callum McCarthy to take over as FSA chairman

Callum McCarthy, the energy industry regulator, is set to take on the chairmanship of the Financial Services Authority, one of the most important jobs in the City of London.

Nominations for the post closed on 10 March and the Treasury has been drawing up a shortlist of candidates. The Treasury is expected to announce its decision shortly.

Mr McCarthy will have beaten an impressive list of candidates. Paul Myners, former head of Gartmore fund managers and author of a review on pension funding, was tipped to be among the applicants, as was Ron Sandler, the former head of Lloyds of London who is currently overhauling the retail saving and investment markets on behalf of the Treasury.

Sir Steve Robson, the former Treasury official responsible for getting the current regulatory act through Parliament, is likely to have been considered as is Andrew Crockett, the outgoing head of the Bank of International Settlements.

Mr McCarthy will have been grilled by two senior Treasury officials and two independent assessors as part of the selection process, but the Chancellor, Gordon Brown, will make the final decision. A spokeswoman for the Treasury yesterday said an "announcement would be made shortly".

The new chairman will appoint a chief executive to support his work and the book is still running as to who might be successful for that post. John Tiner, currently managing director at the FSA and right-hand man to Sir Howard Davies, is thought to be one of the most likely candidates. Sir Howard had acted in a combined role, which many within the FSA believe is the right model for the organisation. The findings of the Higgs review, however, which recommended that that posts be split, meant that two positions were created.

Mr McCarthy will oversee the single regulator for the UK's financial services market, which – as the Treasury's advertisement for the job describes – "plays a key role in the UK economy and has a direct effect on the life of every UK citizen."

It came in to being in 2001 and has 2,500 staff, a budget of £200m and is responsible for policing more than 10,000 financial firms. Sir Howard was the first chairman of the FSA, but after losing out on the top job at the Bank of England, he announced his intention to step down in October this year to run the London School of Economics.

His tenure has not been without incident, and Mr McCarthy will be joining the FSA while investigations in to the regulation of the insolvent Independent Insurance, the financially crippled Equitable Life and of split capital investment trusts are still under way.

Mr McCarthy may find himself the head of a regulator that is in the dock for failing in one of its main statutory duties, that of protecting consumers. The ongoing bear market is also putting pressure on a number of firms' ability to stay in business.

Mr McCarthy, however, is thought to have sufficient regulatory experience to take on the challenge. He has been chairman at Ofgem since 1999, when it became the new energy regulator, and has introduced greater competition in the gas and electricity markets by freeing up regulation – a history many in the City will welcome. Similar to Sir Howard, a number of companies on his watch at Ofgem have come in to financial difficulties, and ministers have complained that his overhaul of electricity pricing was in part responsible for the downfall of British Energy. But Mr McCarthy has defended criticism, saying the UK energy market had "an exemplary record in keeping the lights on."

Neither is he a stranger to the world of financial services, being a former banker with Barclays. He is a graduate of economics from Oxford and, although he spent his early career at the Department of Trade and Industry, he moved on to banking. He was head of corporate finance at BZW, Barclays' former investment banking arm before becoming a senior executive at the bank in the 1990s.

His tenure at Ofgem ends in October, when Mr McCarthy has said he intends to step down.