The Financial Conduct Authority (FCA) has found itself under fire this week after dropping its review into banking culture, while also ending its investigation into claims that HSBC’s Swiss private bank helped wealthy clients evade tax. Instead of reviewing the culture of banks, the FCA has said it will engage individually with firms to encourage the delivery of cultural change.
Bottling it “The FCA has started the New Year not with a bang but a whimper,” says Justin Cash, writing for
CityWire. He reckons that the timing of the decisions to shelve the reviews – which were revealed over the quieter Christmas period – has made many suspicious of the motives. He adds that the “plot thickened further as it emerged that acting CEO Tracey McDermott is the frontrunner to get the FCA's top job on a permanent basis”.
“Conspiracy theorists leapt to the conclusion that she has done what she can to please the Treasury by dropping the reviews after George Osborne pushed out her predecessor Martin Wheatley by failing to renew his contract, ostensibly because of his tough stance on banks,” says Cash.
He goes on to say that dropping the banking culture review in particular seemed at odds with McDermott’s previous stance as the FCA's Director of Supervision, as well as with recent comments she made “cautioning against an ‘infinite cycle’ of deregulating too much in a benign economic environment leading to old problems resurfacing”.
CityWire comment
Light touch a let-downBusiness Insider’s Lianna Brinded warns that the news will undoubtedly annoy some politicians, as well as the public.
“Why?” she asks. “Because this is the latest in a line of moves from the FCA that arguably hark back to the ‘light touch’ approach to banks, which caused politicians and market experts to accuse it, and the FCA’s predecessor the Financial Services Authority (FSA), of ‘falling asleep at the wheel’ when it comes to keeping the banks in check and rooting out wrongdoing.
“Politicians and the public blamed the banks for their culture of reckless behaviour that led to the raft of scandals, while also blaming the regulator for not supervising or enforcing the rules enough. No one wants a repeat of the credit crisis again.
“So, is the FCA being a light touch’ regulator again?” Brinded asks.
“Only time will tell. But considering the two discontinued public reviews into the banks, the removal of Martin Wheatley – who was seen as an intrusive regulator – as FCA chief, and the new [acting] CEO Tracey McDermott meeting with top bank chiefs since taking the reins from her predecessor in September, it looks like it’s not the same approach anymore.”
Business Insider article
Kicking out teethThe opinion column in
Herald Scotland says that dropping the review has made the FCA seem toothless and will only encourage banks to fall back into bad habits.
The column recalls the seeming consensus following the financial crisis that a stronger regulator, as well as stronger regulation, was needed. The shelving of this review portrays the FCA as “weak in the face of the banks’ threats to shut up shop in the UK and move elsewhere – threats which never sounded convincing in the first place,” according to the newspaper.
The article goes on to say that the U-turn sends banks the wrong message: “The danger of replacing the review with a watered down system designed to encourage rather than force change is obvious. The banks say they are making changes to the way they operate, but at a time when there is a real risk of the banks returning permanently to their old ways, ditching the review sends precisely the wrong message: carry on regardless.
“What the banking sector needs is a regulator with bite – by dropping the review, the Chancellor has just kicked out its teeth.”
Herald Scotland opinion
Seen a blog, news story or discussion online that you think might interest CISI members? Email joanna.lewin@wardour.co.uk