The Prudential Regulation Authority’s executive director oversaw a decision by the Financial Conduct Authority to scrap its review of banking culture, according to official documents.
A Freedom of Information request submitted by FTAdviser’s parent paper The Financial Times revealed the FCA first informed the PRA of its decision not to continue with the probe on 17 December.
“We did not hold any discussions with the Bank of England, PRA, HMT or any other body about not continuing with the project,” it said.
Documents seen by the FT showed Megan Butler, an executive director at the Bank of England’s regulatory branch, was one of the key figures overseeing plans to drop the review.
An internal paper published at the end of September showed after being seconded to the FCA at the start that month, she helped draw up the plans just two weeks after the City watchdog let then chief executive Martin Wheatley resign.
The FCA caused industry uproar after abandoning its review of culture at UK retail and wholesale banks just before New Year’s Eve.
The regulator’s review was previously detailed in its annual business plan last year, aimed at determining whether programmes to shift culture in retail and wholesale banks were “driving the right behaviour” and solving issues such as bankers’ pay, appraisal and promotion of middle management.
An FCA response explained the culture in financial services firms remains a priority, but it decided that the best way to support these efforts was to engage individually with firms to encourage their delivery of cultural change, as well as supporting the other initiatives outside the FCA.
“Having undertaken an initial piece of scoping work we decided that a traditional thematic review would not help us achieve our desired outcomes and we would therefore take forward our work on culture through other routes.
“This was an FCA decision, HMT were not involved,” added a spokesperson.
The internal paper from September, devised by a number of people at the FCA, proposed it should no longer be involved in assessing how banks treated staff who raised concerns internally, because this could be better examined by other means, including by the Banking Standards Board.
The FCA said it would not publicise “good” and “poor” practices at banks because it was not perceived as being the expert on working culture.
Instead, the onus was on the industry to identify and measure good practices, according to the document.
There should also be “no further testing of firm practices”, because assessing whether consumer outcomes were influencing banks’ pay decisions “will be challenging”.
The paper also noted obstacles to cultural change at middle-management level were a key risk for the retail banking sector only, rather than wholesale banks, although it admitted the success of this approach would be “dependent on the willingness of firms to participate”.