As the gunsmoke clears…

The afternoon of Friday 17 July saw Martin Wheatley respond to the clear indication from the chancellor that his contract would not be renewed in January as the cue to announce his earlier resignation in October from the job as chief executive of the FCA.

People conveniently forgot that the same chancellor had so carefully lined Mr Wheatley up for the job in 2010 as part of his coalition deal-busting plan to split the FSA and send bank and insurer regulation to the Bank of England.

The cause of Mr Wheatley’s departure is relatively simple. After Simon Davis’ report into the pre-briefing of the business plan last year, Mr Wheatley could not be offered a new contract. Mr Wheatley had told Mr Davis of an un-minuted meeting at which it had been agreed to pre-brief the plan to selected journalists. That very decision to favour some journalists over others was unethical for a public body. The only point of doing this was to ‘advance spin’ the plan itself, something which carried obvious risks of manipulating the market if the material had any sensitivity in that area. Without checking with Mr Wheatley, the then head of supervision and the communications department set up an untaped telephone interview between the Telegraph and a reasonably senior executive. This formed the basis of the article that sent the market into a tailspin.

Mr Wheatley actually knew enough to appreciate that there was a problem by at least 9am. At 9.18 of the morning when the markets for affected insurers crashed, his executive assistant knew of its scale but did not tell Mr Wheatley until after an interview with the BBC at about 11.30am.

By this time, the head of supervision had been struggling with the problem for over three and a half hours without consulting his chief executive, making matters worse by selectively telling callers that the Telegraph’s story was untrue – a misstatement itself capable of manipulating the market a second time. Mr Wheatley only reached the obvious solution when at 2.27pm the FCA published its business plan in full.

The charge sheet against Mr Wheatley over the March 2014 incident reads:

• Bad decision-making on the decision to pre-brief without any agreed minutes or warnings to those involved of the risks that it entailed;

• a lack of trust in him from his heads of supervision and markets, both of whom failed to consult him directly about a major institutional issue; and

• dithering about the obvious solution for almost three hours and not realising the size of the problem for about three more.

The leader of a regulator cannot be expected to know and do everything. However, he does need to be able to identify the big risks facing his organisation and insist that key or sensitive decisions be put in writing so that everyone knows what they are doing.

One can argue that the only reason why the FCA did not remove Mr Wheatley in November when the Davis Report came out was that it had to dispense with the services of the heads of supervision and communications at the same time and probably should have done the same with the head of markets. To mislay the chief executive at the time would have created carnage.

The problem now is that the press is reporting the story as if it were a triumph for banks lobbying the chancellor for some more light touch regulation. The emphasis has been on Mr Wheatley’s rather silly “shoot first, ask questions later” comment which, bearing in mind the fact that he never controlled the Regulatory Decisions Committee, let alone the Upper Tribunal, was always going to be more rhetoric than reality.

In practice, Mr Wheatley did not “shoot” any more than had his predecessors. The size of fines levied during his era is severely distorted by Libor and Forex fiddling which generated most of the headline figures, and was part of a general international enforcement effort anyway.

The only senior executive at a major institution to have been subject to enforcement action during the Wheatley era was HBoS’ Peter Cummings, and he was not part of the inner sanctum that ran that business into the ground.

Mr Wheatley inherited the RDR, and while it was never going to be straightforward, his FCA has handled the changes reasonably well

The ring-fencing proposals and the senior persons regime so disliked by the banking system have nothing to do with the FCA and everything to do with the government. Indeed, at least the first is a response to failures at the FSA/FCA.

So, what has been the Wheatley era legacy? The FCA came into being with a strong emphasis on regulating product manufacturing. Much said on this subject has improved what IFAs can offer clients.

The long-delayed assault on Ucis finally happened, for which all solvent advisers should be grateful. The peddling of this had done the IFA brand enormous harm. The FCA took its first steps towards regulating Sipps and their acceptance of similar non-mainstream investments.

Mr Wheatley inherited the RDR, and while it was never going to be straightforward, his FCA has handled the changes reasonably well. Knee-jerk enforcement has been noticeably absent in this area. Equally, the mortgage market review did relatively little damage to anyone, and could reduce the levels of irresponsible lending in the future.

The big achievements of the Wheatley era probably had little to do with him: the assault on unnecessary or inflated general insurance products and their selling. Add-ons, card protection and other related scandals have made insurers consider whether they are insuring people for things that they already have or do not need covered.

This activity, though, has not extended to packaged bank accounts which risk achieving something similar. Equally, the early efforts to sort out structured products, a legacy of Wheatley’s painful experiences as a Hong Kong regulator, seemed to peter out. The recent research showing how poor structured deposits are and how easily consumers are misled demonstrates the scope for action across this sector.

In spite of the noise, though, enforcement has not made any real progress. Here, Mr Wheatley’s decision to make Tracey McDermott his acting head of enforcement while he tried to persuade Mark Steward to forsake the Hong Kong SFC for the job undermined her authority.

In November, installing another acting head of enforcement while he moved Ms McDermott again to cover the hole in supervision would not have left crooked bank executives quaking in their boots. The one area where enforcement progress has occurred concerns remuneration and incentives. The big LBG fine in this area sent companies off to look at how they reward people and how this might create unacceptable behaviour. This subject is enormously complex and has years of work ahead of it.

Davies, Tiner, Sants, Wheatley – all grey men from management consultant backgrounds – ultimately failed as leaders and regulators. Looking forward, one would like to see the FCA run by people more ethnically diverse and less prone to see the financial services sector as a playground for their bright ideas. “Keep your mouth shut and work with your own staff to shoot where appropriate” would seem a more sensible motto for the next incumbent.

Adam Samuel is a compliance consultant and freelance journalist

Key Points

The FCA came into being with a strong emphasis on regulating product manufacturing.

After Simon Davis’ report into the FCA pre-briefing of the business plan last year, Mr Wheatley’s days at FCA’s helm were numbered.

Mr Wheatley did not “shoot” any more than had his predecessors.