FCA ‘compromised’ in banks role

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FCA ‘compromised’ in banks role

The FCA’s role in penalising banks is compromised by the potential for “regulatory moral hazard and political influence”, Sir Hector Sants, former head of the FSA has claimed.

The claim was made in a 53-page report, Winning the Global Race: the competitiveness of the UK as a centre for international banking, published on 13 November by the British Banking Association and management consultant Oliver Wyman.

Sir Hector, a former banker who is now vice-chairman of management consultant Oliver Wyman, led the review.

Emphasising the importance of the banking sector to the UK economy – the third-largest globally with £3.94trn of assets – Sir Hector cited “self-inflicted” wounds like “unilateral UK regulation, such as ring-fencing” among factors that may increase its vulnerability to international competition.

Under the title ‘Predictable and proportionate application of an effective regulatory framework, aligned with policy objectives’, Sir Hector recommends the: “Government to consider separation of responsibility for redress from the current FCA mandate to a new independent body.”

Sir Hector said the FCA’s mandate “has expanded significantly in recent years, for example, to include payday lenders and payment systems”. Further, he alleged that: “the current remit of regulators covers supervision, penalty and redress. This can distort incentives and create the potential for regulatory moral hazard and political influence.”

An independent body responsible for redress, Sir Hector claimed, “would result in better outcomes, not only for banks, but also for their customers in ensuring a rigorous alignment of redress amounts with the cost of any misdeeds”.

Key dates

2010 – Hector Sants is persuaded to stay on at the FSA

June 2012 – Hector Sants steps down as FSA chief executive

January 2013 – Hector Sants is knighted

21 January 2013 – Sir Hector joins Barclays

November 2013 – Sir Hector leaves Barclays

May 2015 – Sir Hector is commissioned by BBA to conduct the Oliver Wyman review

Sir Hector initially announced his intention to step down from what was the then FSA in 2010, but then stayed on for two more years before leaving in June 2012, and before the FSA was separated into the Prudential Regulation Authority and the FCA.

On 21 January 2013, he joined Barclays as head of compliance, but resigned in November 2013 due to ill health.

Adviser view

Julian Stevens, principal for Bristol-based Harvest Financial Investment Management, said: “Is what the report reccomends to apply solely to the FCA’s power over bankers? That seems oddly selective as one cannot separate one issue – the banks – from everything that needs radical reform at the FCA and how it goes about its business.

“You cannot just say ‘we want to take this big nobbly cudgel out of the FCA’s hands for the banks’. Is Sir Hector saying that the FCA should not have the power to protect the consumer and fine banks for wrongdoing? If reform is not to apply to all sectors of the financial services industry, then it will create an un-level playing field.”