A schism has opened between the FCA and MPs over a perceived lack of transparency at the regulator following a scathing report into its handling of the closed-book review.
Last week, MPs blasted the FCA’s handling of its review into closed-book policies, while the watchdog was also forced to yield over publishing reports on its internal auditing processes.
MPs have voiced concerns about the effectiveness of the regulator’s management as a whole, particularly in following up the Davis Report. FCA chief executive Martin Wheatley and chairman John Griffith-Jones have both been singled out for criticism by the TSC.
TSC chairman Andrew Tyrie described the regulator as a dysfunctional organisation, and raised questions over “systemic weaknesses” at the FCA.
In a raft of recommendations, the committee called for a review of communications and internal working relationships, how the FCAs shares expertise, and its approach to managing risk.
In addition, MPs said the regulator should create a “responsibilities map”, as is the case for banks, clearly showing where senior responsibility lies.
The TSC says it expects the FCA to publish its findings within six months.
Responding to the report, an FCA spokeswoman says: “The FCA is determined to learn the lessons and ensure that this will never happen again and will study the committee’s recommendations and respond in due course.”
MPs questioned whether Griffith-Jones understood the need for impartiality in the Davis Report after he planned for the regulator’s board to conduct an inquiry into the Telegraph briefing, with the assistance of an external law-firm.
After letters from both Chancellor George Osborne and Tyrie, the FCA redrew the remit for Davis’ investigation, but it was not enough to avoid MPs accusing Griffith-Jones of misjudgement.
Meanwhile, Tyrie also criticised the regulator for its response to a request from MPs to share its internal audit reports. Griffith-Jones initially claimed that such a move could hamper its efforts to regulate the industry.
After pressure from MPs, the FCA consented to provide copies of its audit reports one year after they are presented to the regulator’s own audit committee, but added it may use FOI rules as guidelines on whether it can redact information.
Tyrie says: “The evidence from this episode suggests that there may be broader problems at the FCA, which range far wider than points of process and procedure.
“These include the FCA’s communication methods, possible poor working relationships between divisions, the board’s effectiveness, and insufficient focus by its staff on the FCA’s objectives, among other things.”
MRM head of public affairs Havard Hughes says: “The gloss has come off the shiny new FCA and MPs have become increasingly frustrated with it. My reading of the TSC report is that the committee is not impressed, and they believe the regulator isn’t applying the same standards to itself as it is to outside firms.”
Lansons partner Ralph Jackson adds: “MPs are sure oversight of the FCA from the Treasury has not been as good as it should be.
“There are nagging doubts amongst the minds of the committee as to whether the current management have done sufficiently well to give them confidence that under a new regime they would have a good mandate to continue.”
This is not the first time the FCA has faced criticism from elected officials. The regulator has also been under fire from the Work and Pensions committee, which recommended hiving off pensions regulation to a separate body in order to improve the knowledge base among rule makers.
Dame Anne Begg’s committee reported in early March: “Nothing we have heard in our current inquiry has allayed our concerns about the FCA’s focus and expertise on pensions. The comment from FCA witnesses, previously cited, that it cannot ‘stop fools acting like fools’ was particularly worrying and does not inspire confidence in the FCA’s approach to pension savers.”
“These battles will probably continue post election,” one lobbyist says, while another notes that it is more likely that an aggressive TSC will strain its relationship with the Treasury.
Hughes says: “There’s a lot of potential for it to get a lot worse. MPs clearly don’t like the way Martin Wheatley runs things.”