The FCA has narrowly escaped the “nuclear option” of a Parliamentary vote of no confidence but the regulator still faces fundamental questions over its future.
MPs gathered this week to vote on a motion tabled by Conservative MP for Aberconwy Guto Bebb, which stated “this House believes that the FCA in its current form is not fit for purpose and we have no confidence in its existing structure and procedures”.
It was the first vote of no confidence against a regulator in 30 years.
While the motion was not successful, it has sparked debate about the role and structure of the FCA amid accusations consumers are being left unprotected as the “Big Brother” Treasury seizes control of policymaking.
The regulator was branded “blundering” and “weak, toothless and anaemic” by MPs angry over the way it has treated businesses and consumers.
Labour MP John Mann, who backed the motion, was scathing in his criticism of both the Government and the regulator, warning consumer rights are being “ripped away”.
He said: “The FCA ought to be strengthened, but it would appear it is being weakened. With its culture reviewed, dissipated and destroyed, it is being neutered.”
He added: “The consumer champions in the FCA have been systematically removed over the past four months, leaving none in place.
“One can only conclude the rights of the individual, the rights of the entrepreneur and the rights of the consumer are being subsumed to the Big Brother of the Bank of England and the Treasury.
“This leads to a question: are the Government members here listening to the debate really going to be on the side of Big Brother doing down the entrepreneur, doing down the individual and doing down the consumer, or will they be on the consumers’ side? Big Brother is taking over.”
Speaking during the same debate, Conservative MP Gary Streeter said the regulator’s oversight of interest rate swap misselling has been “weak, toothless and anaemic”.
Fellow Conservative MP and Treasury committee member Mark Garn-ier agreed there is evidence the FCA is “not standing up for consumers” but argued a vote of no confidence was a step too far.
He also suggested the Treasury committee could be given a power of veto over the appointment of the next FCA chief executive to ease concerns about Government interference.
And Conservative MP Jacob Rees-Mogg warned: “The motion is really serious. It says we have no confidence in an arm’s length independent regulator that this House established just three years ago. If we really mean that, we ought to be legislating to create a new one.
“We should not simply pass a motion; we should say that the body has failed, that it will be abolished as of 1 April and that a new one will be created.”
He added: “A vote of no confidence is the nuclear weapon of Parliament. It is something that brings governments down. If we pass the motion, it ought to lead to fundamental change at the FCA and resignations, but I fear we are trying to fire this gun before we have loaded it with gunpowder, and therefore it will misfire.”
The debate reflects widespread concerns in the industry about the way the FCA operates.
Independent consultant and former FSA head of retail policy David Severn says a lack of accountability remains a serious issue.
He says: “Formally the FCA is accountable to the Treasury and to Parliament but I am a bit cynical about this. The last thing Treasury ministers want is to be held accountable for what goes wrong in financial services, so having the FCA as a scapegoat which can be blamed when things go wrong suits them.
“On the other hand it means ministers can’t get their own way on some matters as the FCA is independent.”
He says the “nuclear” options open to policymakers include firing the chairman or chief executive, or, more radically, scrapping the organisation altogether.
Severn also argues the senior managers regime set to be rolled out across the sector could be applied to regulators and civil servants. This would mean regulatory failures would be punished through a fine or some other penalty.
But MRM head of public and regulatory affairs Havard Hughes says Parliament, rather than the FCA, is not fit for purpose.
He says: “Strip away the theatrics and this ‘no confidence’ debate was a farce. As Jacob Rees Mogg pointed out, there was never any question that it would change anything nor abolish the FCA. The FCA motion was therefore simply a chance for the usual suspects to make a name for themselves by giving the hapless regulator a roasting.”
Libertatem founder Garry Heath, who was a driving force behind the debate, is pressing for the regulation of the “lower risk” advice sector to be split from other industries, such as banking.
He says: “Advisers need a less expensive regulator that is focused purely on the IFA sector. We need to get away from a system where advisers are treated like mini banks.”
The new boss
The rhetorical bombs lobbed at the FCA by MPs will only add to the pressure on recently recruited Prudential Regulation Authority chief executive and Bank of England deputy governor Andrew Bailey.
Bailey’s appointment was lam-ented in some quarters as further evidence of Chancellor George Osborne’s growing influence over the supposedly independent FCA – an accusation vehemently denied by the Treasury.
Heath says: “The battle is a very simple one: is the regulator there to protect the consumer, or is it there to bury problems for the Government?
“It is clearly concentrated on the latter at the moment and the appointment of Bailey is evidence of that.”
Severn says Bailey is a “safe pair of hands” but warns: “His background [at the Bank of England] seems to be entirely prudential regulation so the risk is he will not be interested in or engaged with conduct of business issues.
“His appointment will fuel the view of those who think the FCA is going ‘soft’ on bankers after it dropped its review of banking.”
Claire Walsh, chartered financial planner, Aspect8
I regularly feel frustrated at regulation but the last thing we need is another overhaul and rebrand because the FCA needs to focus on dealing with existing issues. There is also a benefit to regulation in that it gives consumers confidence that they are being protected, so I would be concerned if that was eroded in any way. Generally we would like to see the FCA be more open with the industry about what they are doing.
Backbench business debates are not where regulators meet their end. This debate aimed to fire a shot across the FCA’s bow, not hole it below the waterline.
While a parliamentary motion to effectively end the FCA sounds dramatic, it mostly amounted to a dozen MPs reeling off constituent complaints into the night.
The FCA and the Government would have been familiar with a charge sheet reaching back to the FCA’s truly incapable predecessor, the FSA.
The trigger for this session was the FCA’s decision to quietly drop its banking culture review.
The accusation that the Chancellor influences FCA decisions is a serious one. Its operational independence is the cornerstone of its integrity but Labour is keen to push the image of “the banker’s Chancellor” lobbying to give financial services an easier ride.
There is no proof this is happening but MPs are concerned about subliminal influence. The FCA’s recently jettisoned chief executive, the luckless Martin Wheatley, is held up as an example of what happens if you do not heed the Chancellor’s wishes.
However, a parliamentary debate on the FCA’s ability to do its job is a paradoxical platform from which to accuse others of trying to exert political influence on the regulator. The MPs themselves were very open about using the debate to encourage FCA action on specific issues.
The FCA is only three years old and the “twin peak” regulatory system is still settling in, yet some are already calling for its head. MP Mark Garnier was right to ask what message this debate sends to global markets that trust the UK to handle trillions of capital every year.
New FCA chief executive Andrew Bailey is not only an experienced regulator but also a veteran parliamentary performer.
Having given evidence to the toughest committees in Westminster, he will see this debate for what it is but it was still a timely reminder: the Chancellor is not the only person to whom he will have to answer.
Daniel Regan is a senior account manager at Cicero