If you buy a watchdog you expect it to have certain basic characteristics: a loud bark, sharp teeth, and an enthusiasm for savaging wrongdoers. But the compromise City settlement shaping up over split capital investment trusts suggests that, in its first big test as a watchdog, the Financial Services Authority has behaved more like a pet Pekingese.

A caveat is immediately necessary: the FSA and the 22 firms involved in the splits investigation are still negotiating. The talks could break down, or the final deal might be tougher than the outline seeping into the public domain. But from what is known, the FSA appears to have threatened far more than it could deliver, and been outmanoeuvred.