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‘Rudderless’: Lack of leadership breeds uncertainty at the FCA

Fears are rising that the FCA has been left “rudderless” by a protracted search for new leadership as the regulator runs out of time to finalise its 2016/17 plans.

Chancellor George Osborne revealed last week, six months after he announced Martin Wheatley’s contract would not be renewed, that acting chief executive Tracey McDermott would not seek to fill the role permanently.

Recruitment firm Zygos Partnership has reportedly been leading the hunt for a new chief executive, and since Wheatley’s exit several candidates have been linked with the job, including regulators from Australia and Switzerland as well as current Treasury mandarins.

Zygos and the Treasury both declined to comment when asked for an update on the recruitment process. But a trio of former regulators have warned that the lack of leadership at the FCA is breeding uncertainty about the regulator’s priorities.

‘Developing headache’

Independent regulatory expert Richard Hobbs, who was a consultant at the FSA from 2000 to 2002, warns the failure to find a replacement, alongside the revelation that McDermott will not seek a permanent role, leaves the regulator unable to work on future plans.

It had been reported that McDermott was the leading candidate to replace Wheatley but she withdrew from the contest in December. She said the recruitment process had made her “reflect on what I want to do with the rest of my career”.

Hobbs says: “The FCA should be deep into planning its strategic priority announcements for late spring. How can it do that when it doesn’t have its new chief executive?

“There is a real operational headache developing to do with when they can produce their 2016/17 strategy and what it says.”

Every year since its launch in 2012 the regulator has published in late March a business plan laying out its priorities for the year ahead.

At the time of going to press, this leaves the regulator with six weeks to formalise its priorities for 2016/17.

An FCA spokesman says: “The FCA has had a chief executive [since Wheatley’s departure] – it’s had Tracey McDermott.

“It is simply not true to say that there is a lack of strategic direction or planning at the FCA at the moment. The FCA’s strategy is set by the board and executive committee, not just the chief executive.  We are currently in the middle of our planning round for 2016/17 and will publish our annual business plan as usual this year.”

However, MRM head of public affairs Havard Hughes, an FCA veteran of four years, says while much of the regulator’s leadership remains intact, the long-term incumbency of bosses such as McDermott, who joined the FSA in 2001, results in a natural disinclination for reform.

He says: “The ship always sails on, but the question is at what point does the FCA become rather rudderless?

“That must be a concern in the sense that we do want to have someone in charge who is going to give it a firm sense of direction.

“This is exemplified by this whole debate over commission and the RDR. Is there going to be change in policy or not? I’ve spoken to people within the FCA and nobody seems to be any clearer, and that’s a fundamental problem.

“To have that kind of uncertainty starting to creep into the picture is bad for everyone.”

Pinsent Masons senior associate Michael Ruck, who left the FCA in 2013, adds while a change in strategy is clear in broad terms, the predicament has left FCA staff unsure over more immediate plans.

He says: “There’s going to be a change in focus. If a bank fails, then enforcement action will still be taken, but the FCA will be looking to take more significant action in other areas, be that insurance, investments or even advice.

“But internally there are questions about what direction the FCA is looking to take and what specific priorities it wants to implement.

“They are struggling with what they need to be and what other people want.”

Government interference

The debate comes after Parliament’s Treasury committee summoned McDermott and FCA chairman John Griffith-Jones as part of an investigation that will look at the regulator’s implementation of the Vickers reforms, with particular regard to its decision to halt an inquiry into banking culture.

Labour MP and committee member John Mann claimed last week that the decision was taken at the behest of the Treasury. McDermott hit back on BBC Radio 4  at the weekend: “We are not going soft on the banks. We are not being told what to do by the Government. We have objectives which are set for us by Parliament in statute, and we are determined to deliver on those.

“If you look at what we have been doing over the past six months while I have been in the role of chief executive, you will see that we have continued to take action against the industry, both in terms of penalties on firms and individuals, absolutely delivering the right outcomes for consumers in financial markets.

“The reality is that we make our decisions about what we think is going to be the most effective way to achieve the outcomes that we are looking to achieve, and that includes holding the banks to account where we need to.”

A Treasury spokesman says: “Any suggestion that the Government does not respect the independence of the FCA is false and misleading.”

However, Mann’s fellow committee member, the Conservative MP Mark Garnier, warns the situation may not be as clear cut as direct instructions from the Government.

He says: “There is also an implicit influence. McDermott will have heard the suggestions that Wheatley didn’t get his directorship renewed because he was too tough on banks.

“It would therefore make sense for someone who wanted to be chief regulator to demonstrate they are softer on banks by doing the kind of things the FCA has already done.”

Garnier adds the spectre of influence, real or imagined, may have other side effects.

He says: “Have we put the FCA into an invidious position where we can’t get the right person because we spent so long beating up the regulator that no-one wants the job?”

Adviser views

Dennis Hall, managing director, Yellowtail Financial Planning

In some ways I don’t mind if the FCA pauses in taking strategic decisions because it might give advisers a break. I’m more concerned about a lack of strong leadership.

There has been plenty of concern about them going soft on the banks, so maybe a strong leader would be pushing back harder on any messages to do so from the Treasury and challenging the Government.

Lee Robertson, chief executive, Investment Quorum

Interference is a big word that can be used to cover all manner of sins. Just as one man’s terrorist is another man’s freedom fighter, some people will be more worried about some conversations between the Treasury and the FCA than others, and that’s always likely to be the case.

While I would be disappointed if the Treasury and the regulator weren’t talking all the time, it’s right for MPs to ask these kinds of questions about interference.

Expert view

The trouble with this question of influence is there is considerable sophistication and subtlety in the relationship between the Government and the FCA.

If you look at the legislation, what Parliament intended with the FCA was an arms-length regulator, which nevertheless spoke to government, with certain matters reserved for the Chancellor, like the appointment of a new chief executive or chairman.

But ultimately, what an independent regulator does is carry out public policy for Parliament in conjunction with the departments of state, most obviously, the Treasury.

You cannot have an effective regime where these people do not talk to each other, and there is nothing wrong with that.

And when there’s an interregnum, as now, you would expect those conversations to intensify.

There is also the removal of Martin Wheatley, but I do not believe that Treasury officials or the Chancellor did anything that Parliament had not envisaged.

Wheatley had lost the confidence of the Chancellor but Osborne did not dismiss him or his team, instead they declined to renew his contract.

That intervention was relatively mild and fully within the Chancellor’s powers, but it was caused by a whole series of things, most obviously, the life assurance debacle.

But some of these MPs, like John Mann and Mark Garnier, are going out on a limb. For them to criticise the FCA for its poor performance and then criticise the Treasury for intervening is somewhat contradictory.

My hypothesis is that Wheatley was protected in the last Parliament by the support of Vince Cable, among others.

As soon as the Lib Dems were no longer in government the Conservatives adjusted policy more to their liking, with a more emollient stance towards financial services, and removed Wheatley.

Richard Hobbs is an independent regulatory consultant


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There are 6 comments at the moment, we would love to hear your opinion too.

  1. Dennis

    You’re in cloud cuckoo land if you think a new head will get tough on banks. That’s probably why Wheatley got the heave-ho. Osborne is worried that some banks may relocate away from the UK if things get too hot. Apart from Government interference there is always the revolving door to consider – a great incentive for regulators to be nice to banks.

  2. I find these comments very interesting. It is very clear no one wants the top job at the FCA, why, as it is now seen as a career ending post.

    Conservative MP Mark Garnier comment “Have we put the FCA into an invidious position where we can’t get the right person because we spent so long beating up the regulator that no-one wants the job?” This comment sums it up, including recruiting the right people into the financial advice sector. Having been blamed for everything over the last 26 years, continually beaten up by politicians, the media, no legal long stop, costs driven down to levels not sustainable, out of control regulatory fees, lack of continuity and no clear direction, many looking at a career discount financial advising.

    The RDR cost the industry Billions, yet 3 years on the regulator is thinking of undoing all the positive outcomes due to pressure surrounding the advice gap. What no on is questioning is what percentage of consumers actually care, they are not looking for advice. Further more, how can you say they cannot afford to pay fees, when they are saving?

  3. I’ll do the job, I ‘m not sure I’ll be there for very long to be honest, But I would get tough on banks, reduce all charges to IFAs and probably be sacked within the first week – but so what eh? set up for life on the pay off.

  4. Leaderless and clueless but in some ways it isn’t their fault. The Treasury seems to think it can butt into regulation but not be accountable for its actions. Too many stakeholders – most of whom are not directly involved – expect regulation to be everywhere.

    The FCA is too big to be run properly and too compromised to be seen as fair. That is why Libertatem has suggested the Professional Advisers declare UDI with PAR.

    We can move our regulation out of the Metropolitan bubble and develop a regulatory team which stays and works – not as currently with the FCA using regulation as a stepping stone for other careers.

    Join the fight

  5. The regulatory always has been a nationalised industry in all but name, with no accountability to costs. No private company could ever be run like that and survive. And like all nationalised industries it is slowly an inevitably dying a painful death, just like all others before them. I am sure in time it will once again morph into something else in name like a phoenix from the ashes. Lets face it, whatever positive slant you try and put on it, this industry really is in a mess thanks to the constant tinkering. I am surprised any adviser still wants to be in this business. My plan had always been to stay in the industry well beyond 65 , but with events over the past few years i will be reluctantly hanging up my boots this September. Where are all the new advisers coming from?

  6. I’d still like to know just what issues emerged whilst Tracey McDermott was going through the recruitment process which led her to withdraw her application.

    Wasn’t some bloke from the Treasury in the frame as a possible contender? Or was it more that he wasn’t actually a contender, the Treasury just put his name forward?

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