Should Govt back Hector Sants’ plan to strip FCA of fining powers?

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Proposals from former FSA chief executive Hector Sants to strip the power to set fines away from the regulator have been given a cool reception by the industry.

Sants made the suggestion as part of a report commissioned by the British Bankers Association last week.

Now working for consultancy Oliver Wyman, he argued the Government should consider establishing “a new independent body responsible for penalty and redress decision-making” outside the FCA.

Sants also suggests policymakers examine the case for increasing operational separation of the FCA’s supervision and enforcement divisions.

The report says: “The current remit of regulators covers supervision, penalty and redress.

“This can distort incentives and create the potential for regulatory moral hazard and political influence.

“Many contributors believed that an independent body responsible for redress would result in better outcomes, not only for banks but also for their customers in ensuring rigorous alignment alignment of redress amounts with the cost of the misdeed.”

The report also warns the existing rules “place a disproportionately large burden on smaller banks that are less able to absorb the cost of the increasing complexity of the regulatory environment”.

Garry Heath, founder of adviser group Libertatem, says Sants’ proposal to take the ability to set fines away from the FCA is right “but for the wrong reasons”.

He says: “A lot of people right at the top of regulators have come into it having been at one of the big banks, and why shouldn’t they?

“But it does give off the feeling that if you are a larger player then you might be protected because a subset of your ex-colleagues are running the regulator.”

Threesixty managing director Phil Young argues that it remains unclear why the creation of a new body would prevent “political influence” affecting the FCA.

He says: “Given there’s been some concern about the FCA’s own independence and there’s speculation about whether the regulator will be under pressure to go soft on the banks, it could be that the Government have too much of an influence over the FCA’s policy.

“But Sants’ solution would just put the problem somewhere else, rather than fixing it.

“It just begs the question of why wasn’t it done when he was in charge of the regulator? And do we really need another Quango?”

Adviser view

Duncan Carter, managing director, Clearwater Financial Planning

The FCA does what it wants and is fairly unaccountable, and the fines are just part of that.

So those fines and the ability to raise them needs to be subject to greater scrutiny and more accountability.

Any fines levied should be used to reduce the burden on regulated firms as opposed to going into the Treasury’s consolidated fund.