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By Caroline Binham Jan. 8 (Bloomberg) — Sitting in his London office, Adair Turner is a study in gray eminence. A charcoal wool suit complements his silver fringe of hair, and he’s framed by a window that looks out to a leaden winter sky punctured by steely skyscrapers. The towers are home to Barclays Plc , HSBC Holdings Plc and other lenders Turner watches over as chairman of the U.K. Financial Services Authority, Britain’s financial regulator. The setting belies Turner’s growing reputation in the City, London’s financial district, as a troublemaker. Turner, a former director general of the Confederation of British Industry , or CBI, the main U.K. business lobby, might have reasonably been expected to act as a bureaucratic booster for banks and investment firms reeling from the global recession. Instead, since taking the job in September 2008, he’s used his time as regulator to scold the financial services industry for growing too large on the back of risky products that he says offer little value to society, Bloomberg Markets magazine reported in its February issue. To reduce the appetite for speculative risk, Turner is promoting a levy on financial transactions to divert money to the poor and support efforts to address climate change. The so-called Tobin tax is named after the late U.S. economist James Tobin , a Nobel laureate who proposed a surcharge on currency trading to deter speculation. “I believe in markets; I believe in enterprise,” says Turner, who numbers Franklin D. Roosevelt and British economist John Maynard Keynes among his personal heroes. “But I have always believed that market economies will not of themselves combine that with environmental sustainability or with a reasonably just and good society. I believe that capitalism needs to be saved from itself.” Pinstriped Provocateur Turner — a member of the British House of Lords and head of the country’s Committee on Climate Change — seems to enjoy his role as a pinstriped provocateur, casually remarking that he also supports the decriminalization of drugs. “I very strongly believe that society is best served by not having shibboleths, areas where we can’t go,” he says. Turner’s public campaign has helped nudge British lawmakers into getting tough on banks. U.K. Prime Minister Gordon Brown told a Group of 20 nations meeting in November that he supported a global transaction tax. Then, on Dec. 9, Brown’s government imposed a temporary 50 percent levy on bank bonuses, which applies to awards over 25,000 pounds ($39,800) issued from that day to April 5. The charge will be paid by banks instead of employees. ‘Core Issue’ Turner is using his post and influence to ask that bankers consider what purpose they serve in society. “To say that in Britain, in London, as head of the FSA, is really something one would not expect,” says Tommaso Padoa- Schioppa , European chairman of Promontory Financial Group , a regulatory advisory firm. “He addressed a core issue: that the size of finance may have grown beyond what is serving a useful purpose for the economy,” says Padoa-Schioppa, who was Italy’s finance minister from 2006 to 2008. Turner is lambasting an industry still smarting from the credit crisis. Financial services accounted for 10.1 percent of the U.K.’s gross domestic product and 27.5 percent of corporate taxes in 2007, according to statistics from the U.K. government and PricewaterhouseCoopers LLP. More than 1 million Britons were employed in financial services that year, according to the U.K. Office for National Statistics. The London-based Centre for Economics and Business Research estimates that City firms have cut as many as 50,000 jobs since the beginning of 2008. Covering Risk In the wake of the global recession, Turner’s FSA is proposing that U.K. banks at least double the amount of capital they set aside to cover the risks of proprietary trading and bolster the level of shareholder equity available to absorb potential losses from activities such as lending. The FSA also wants to require big banks to draw up so-called living wills to guide regulators on how to wind up their operations the next time a disaster strikes. Turner triggered controversy in August when he first floated the transaction tax idea and criticized the size of the U.K. financial sector in an interview in Prospect, a British journal. At a black-tie gathering of financial executives in London on Sept. 22, Turner said banks should move away from products, such as complex derivatives, that don’t benefit society. “Some financial activities which proliferated over the last 10 years were socially useless, and some parts of the system were swollen beyond their optimal size,” he told the gathering. ‘Appalled, Disgusted, Ashamed’ Turner’s remarks have been condemned by executives who say it’s ridiculous to introduce a moral dimension to regulation. “Quite honestly, I am appalled, disgusted, ashamed and hugely embarrassed,” wrote Howard Wheeldon , a senior strategist at BGC Partners LP, in an August note. “How dare he?” Wheeldon now says. “Markets will decide if something is too big or too small. It’s not for an individual, however powerful, to slam and damn nearly 1 million people.” Michael Spencer , chief executive officer of London-based broker ICAP Plc , joined the chorus of critics in late November. “I was genuinely offended,” Spencer said at an industry awards dinner in London. “Using his logic, I presume he would describe Porsche as socially useless for making cars that go twice the speed limit or Jimmy Choo for making shoes in dozens of different colors.” Turner is mostly unrepentant. While his words may have been imperfect, he now says, he stands by the sentiments behind them. “I wish I had said ‘economically useless’ rather than ‘socially useless,’ as it would have been more precise,” he says. Global Influence Now, Turner has a potentially more powerful forum for his ideas: the G-20. As a member of the global Financial Stability Board , he’s been asked by the G-20’s central bankers and finance ministers to propose ways in which governments should regulate international firms such as Deutsche Bank AG and Goldman Sachs Group Inc. His brief is to explore whether banks’ trading arms should be split from their deposit-taking units. Turner has said he’s against such a divide and instead favors surcharges on riskier trades to make them less attractive. He has also proposed requiring lenders to set up separate regional subsidiaries so that bank failures can be contained, helping to prevent the market seizures that followed the 2008 collapse of Lehman Brothers Holdings Inc . Power, Charisma The son of a town planner, Jonathan Adair Turner has displayed a political suppleness throughout his public career. At the University of Cambridge, where he studied history and economics, he was chairman of the student Conservative Association , only to shift his allegiance to the now-defunct center-left Social Democratic Party in 1981. Though Turner was given a peerage in 2005 by the Labour government, he joined the House of Lords as a cross-bench, or unaffiliated, member. “There are very few people out there who have his charisma,” Wheeldon says. “Power seems to ooze from his fingertips.” After graduating with top honors from Cambridge in 1978, Turner worked as an economics tutor and joined McKinsey & Co. four years later, eventually opening the management consulting firm’s banking practice in Eastern Europe and Russia. It was at McKinsey that he met his Irish-born wife, Orna Ni-Chionna , with whom he has two daughters. In 1995, he became director general of the CBI at the age of 39. ‘Red Adair’ At the CBI, Turner built a relationship with Labour Party leader Tony Blair and was dubbed “Red Adair” by the British press, a play on the name of the late American oil-well firefighter. At the time, Labour officials regularly met with City executives to assure them that the party was friendly to business. Blair became prime minister following Labour’s landslide win in May 1997, ending four terms of Conservative rule that began with Margaret Thatcher’s election in 1979. “The CBI in the old days was the bulwark of the Thatcher regime,” says Simon Gleeson , a regulatory lawyer at Clifford Chance LLP in London. “Adair was seen to be extending the CBI hand of friendship to the Blairites. For the mainstream CBI, this was just the most radical thing.” As one of his first acts as chancellor of the Exchequer in Blair’s government, Brown created the FSA in 1997 and divided oversight for the financial system among it, the Bank of England and the Treasury. In 2002, Blair appointed Turner to head a government commission on the U.K.’s pension system. Turner’s 2005 report recommended requiring all workers to enroll in a pension program and called for boosting the retirement age to 68 from 65. The proposals were initially rejected by Brown for being too costly. Today, both major parties endorse Turner’s plan to keep people working longer, following bank rescue deals that have cost U.K. taxpayers about 850 billion pounds. Stage Double Turner, named FSA chairman by now-Prime Minister Brown’s government in 2008, may lose his job after the next general election, which must be held by June. The opposition Conservatives have pledged to abolish the FSA and hand regulation back to the Bank of England. Thanks in part to his public profile, Turner currently appears as a character in a David Hare play about the financial crisis called “The Power of Yes.” The drama, based on interviews with bankers and investors, reaches a climax with Turner’s character noting that following the recession, talented people may turn their backs on financial careers to battle climate change or drive medical research. In real life, Turner is just as skeptical about the size of the industry he regulates. “There is a confusion that blew up over the years that the FSA ought to be the cheerleader for London’s financial services industry,” he says. “It’s not the role of the regulator to make the industry as large as possible. I think some people get confused about that.” After Turner’s yearlong campaign to challenge presumptions in the City, there’s little doubt that the days of uncritical oversight are over. — Editors: David Ellis , Gail Roche To contact the reporters on this story: Caroline Binham in London at cbinham@bloomberg.net ;