Banking inquiry shelved by regulator

December 31, 2015 10:28 am Published by

Banking culture inquiry shelved by regulator FCA

  • 31 December 2015
  • From the section Business

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The City regulator, the Financial Conduct Authority (FCA), has shelved plans for an inquiry into the culture, pay and behaviour of staff in banking.

The FCA had planned to see whether pay, promotion and other incentives contributed to misconduct seen in previous years.

The review was meant to be a major piece of work by the watchdog.

Mark Garnier MP, a Conservative member of the Treasury Select Committee said he was “disappointed” by the decision.

He said there may have been a political motive.

Banks have been caught up in numerous wide-spread scandals resulting in hundreds of millions of pounds of fines from regulators across the world.

Misconduct includes fixing interest rates and currency rates.

Asked whether the regulator may have come under political pressure to shelve the inquiry Mr Garnier told BBC Radio 4’s Today programme: “There’s always been this great argument that perhaps the Treasury is having more influence over the regulator than perhaps it ought to. And certainly if I was looking for a Machiavellian plot behind what’s happened here and the tone of the regulator then I suppose I would start looking at the Treasury.

“And it’s certainly been widely talked about that the Treasury thought the regulator was overdoing it in favour of the consumer and certainly from my point of view on the Treasury Select Committee, I thought otherwise.”

Missed opportunity

The FCA said it was working with individual firms to help them deliver “cultural change”.

Mark Garnier said he thought there was little chance of a thorough investigation into the way banks operate: “I think it remains to be seen whether this is a cancellation or a delay, but I fear it probably is a cancellation and I think probably we’re missing an opportunity to be able to look at what is best and worst practice across the banks.”

Mr Garnier said this was the only real way the banks could learn from best practice and give the consumer “confidence in the banking industry itself”.

“But I equally think the regulator has a very difficult job to do which is striking the balance between looking after the people who are its members, the financial institutions, and the consumer.”

The decision to drop the inquiry comes six months after FCA boss Martin Wheatley – who was originally hired because of his reputation as a tough regulator – was effectively sacked by Mr Osborne, after he was told his contract was not going to be renewed following two tumultuous years in the role.

Many in the City found Mr Wheatley’s approach too combative and raised concerns about some of the language he used in reference to the banking industry.

No coincidence

Percival Stanion, head of multi-asset strategies at Pictet Asset Management, told the Today programme there was “definitely a shift in tone towards the banks”.

“This is reinforced by some of the scandals we’ve seen in other areas, such as VW, or HMRC being directed to look into VAT at airports. Bankers are heaving a sigh of relief at the signal that the government is off their backs,” he said.

He also suggested that it was “no coincidence” that the investigation was being dropped at a time when HSBC was reviewing whether to keep its headquarters in London.

Analysis: Business correspondent, Simon Jack:

This will be seen by many as further evidence that regulators and the government have decided to take a softer line with the banks and bring the “banker bashing” era to a close.

The government is keen the UK, and London in particular, doesn’t lose its appeal as a place for global banks to do business and employ highly paid (and taxable) people.

There have been a series of moves perceived as bank friendly in the last year. Martin Wheatley, the former chief executive of the FCA and a fierce critic of the banks was eased out of his position earlier this year and is yet to be replaced.

A time limit is being proposed on compensation claims for those mis-sold payment protection insurance (PPI) – a scandal that has seen the banks haemorrhage £25bn to date and the bank levy, a charge on UK banks worldwide assets was replaced with a less onerous charge on domestic profits.

HSBC has also been a vocal critic of the bank levy, which the Chancellor of the Exchequer, George Osborne, reduced in his Summer Budget following the general election.

Mr Wheatley was succeeded by his deputy Tracey McDermott in September on an interim basis, but the chancellor has reportedly struggled since Mr Wheatley’s departure to attract a new FCA chief, with at least one leading financial regulator said to have turned the job down.

In a statement, the FCA said a focus on the culture in financial services firms remained a priority.

“There is currently extensive ongoing work in this area within firms and externally,” it said.

“We have decided that the best way to support these efforts is to engage individually with firms to encourage their delivery of cultural change as well as supporting the other initiatives outside the FCA.”

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This post was written by FSB News