It is unlikely that Juvenal, the first century Roman poet, had the Financial Conduct Authority in mind when he famously asked: “Who guards the guards?”
A slew of depressingly similar scandals have, however, brought the question of regulatory oversight into sharp relief. Indeed, such has been the extent of the FCA’s negligence and downright incompetence that it seems the regulator has, in secret, launched a campaign to get itself abolished.
After all, within the space of a week in August, the FCA was strongly criticised by Dame Elizabeth Gloster for failing to make any headway in the investigation into the causes of the London Capital & Finance scandal before latterly announcing that it intends to cap the compensation it pays out even when its actions are identified as “the chief cause of loss”. It would seem that the guards are refusing to let themselves be guarded.
Incidents such as these are far from being isolated. The Tomlinson Report in 2013, for instance, found that even whilst RBS was clearly and “systematically abusing customers,” the FCA did nothing. No action was brought after HBOS committed its jaw-dropping frauds.
But perhaps the clearest example is the PPI scandal. Flagrant misselling was an open secret: stories of banks jacking up the interest on loans sold without PPI abounded. The then FSA knew full well what was taking place right under its nose and did nothing, beyond issuing a lacklustre report in 2005 noting poor selling practices and lack of compliance controls.
Of course, the mis-selling continued and the first fine was not issued until 2007, and even then these only targeted smaller institutions such as Alliance & Leicester, which lost a desultory £7m in fines from an estimated PPI income of £135m.
Eventually, a further two years later, PPI was banned, but not before individuals lost huge sums in one of the worst banking scandals in living memory. But it was not swift, clear-sighted action from the regulator that did it for PPI. Rather, the rise of claims companies that spurred individuals to seek out redress in such huge numbers that the regulator had to act.
The FSA has since evolved into the FCA, but it is clear that incompetence runs in the family. In fact, if Antony Townsend, the UK Complaints Commissioner, is to be believed, the FCA’s failure to take action for six months after news of investors being defrauded came to light is a sure sign that it has a ‘lack of curiosity or sense of urgency’. In other jurisdictions such words might be terminal, but not here.
FCA does not live up to the City
Our present state of affairs should be a cause of alarm. The City – the alleged envy of the world – is barely regulated and all too often allowed to run riot. This is not because we lack the resources or the ability to properly police the sector, but because the regulator all too often works hand-in-glove with banks and political interests.
Thus, it is a predictable absurdity that the government’s Coronavirus Business Interruption Loan scheme advisor is a Conservative Party donor. Ours is a revolving door system, where a procession of Treasury permanent secretaries – Lord Burns, Sir Peter Middleton and Lord Macpherson, to name a few – stroll out of Whitehall and into plum City jobs.
Such a situation does not lead to effective regulation and swift action against wrong doing. The City may be a modern wonder of the world, but its regulator appears to have been drawn from a banana republic.
It is long overdue that we sought to guard the guards. When the regulator fails, as it so often does, the government must step in: individuals who preside over myriad instances of regulatory incompetence must not become the governor of the central bank, for instance.
We need a regulator that is transparent and accountable, where compensation is not capped simply because it is easier than regulating, and where individuals are empowered to secure redress not just from banks, but also from the regulators themselves. It is not that such steps cannot be taken, but that powerful interest groups prevail to step these being taken.
Or perhaps the FCA is indeed trying to get itself abolished.
Philip Sinel is a senior partner at Sinels