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Peers push for tougher FCA powers to put firms in ‘special measures’

Peers who sat on the banking commission are pushing for the FCA to beef up its pre-enforcement powers by putting firms into “special measures”.

Former Chancellor Lord Nigel Lawson, Archbishop of Canterbury Justin Welby, former Treasury select committee chairman Lord John McFall and former cabinet secretary Lord Andrew Turnbull have joined forces today to table a series of amendments to the Banking Reform Bill.

The bill is in the House of Lords report stage after passing through the House of Commons, meaning it is the last chance for detailed scrutiny and amendments.

The main purpose of the reform is to ring-fence banks’ retail division from their investment arms in order to prevent future Government bailouts.

The influential group of cross-party heavyweights want the FCA and Prudential Regulation Authority to have stronger powers to investigate professional standards and culture.

The FCA has started to use more soft powers such as attestations and section 166 skilled persons reports before starting any formal enforcement action.

The commission members argue the FCA should be able to take firms into special measures if they believe their systems or professional standards or culture are not up to scratch.

Under the peers’ proposals, the regulators would give a firm notice to ask it to prove their regulatory safeguards are sufficient. The FCA or PRA may then commission an independent investigation into the firm’s systems, professional standards and culture.

After the report the FCA could order the company to take measures to provide sufficient safeguards to monitor their effectiveness. Firms must comply with the notice and appoint an appropriately senior member of staff to oversee compliance.

Currently, the FCA has the power to order skilled persons reports or section 166 reports, which check for weaknesses or failings in a firm’s practices. The regulator orders these reports to be carried out where it has concerns, and firms have to meet the cost of carrying out the report.

In its response to the banking commission, published last month, the FCA said the objectives of the proposals are achievable under current rules.

The banking commission members have also tabled amendments to reiterate their call for the creation of a statutory regulatory decisions committee to enshrine an independent appeals process in law.

A statutory RDC has been repeatedly rejected by the Government because it does not want to undermine the independence of the regulators.

The peers also want the Financial Policy Committee to have responsibility for setting the leverage ratio which banks have to meet as part of more stringent capital requirements. The leverage ratio is currently set at 3 per cent in line with European rules but many have pushed for a 4.06 per cent level.

The Building Societies Association estimates the higher level would shrink their members’ mortgage books by 25 per cent.

Labour has tabled amendments calling for all financial services staff to have a fiduciary duty to customers and higher professional standards in banking.

It also wants the Treasury to keep a reserve power to separate all banks, not just ring-fence, instead of its current proposals to separate individual institutions.

Labour says it will support the vast majority of banking commission amendments such as the a statutory RDC and special measures.


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