External review questions FCA’s independence

External review questions FCA’s independence

A review of the Financial Conduct Authority’s board has uncovered a number of challenges, chief among them questions over the regulator’s independence and susceptibility to external influence.

In June last year, the FCA’s board commissioned Boardroom Review Limited to undertake a review of its effectiveness.

Once the review concluded in October, the regulator confirmed to the Treasury select committee that it had commissioned another report, with the results to be published.

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The report, which was published last Thursday without fanfare, detailed several strengths of the board - a collaborative culture, information of a high quality and a focus on the right issues.

However the report also highlighted many challenges - the management of stakeholders, board composition planning, maintaining the effectiveness of internal audit, the focus on resource allocation, attention to corporate culture, executive development and succession.

In terms of stakeholder management, the report stated although the FCA is constituted as an independent regulator, its remit is defined by government, which has a “significant impact” on the role and influence of the board.

“External interventions, which can put pressure on the chairman, and/or bypass the chairman and the board entirely, can have dramatic effects on the organisation.

“All directors are aware that the political landscape is particularly difficult to manage. Recent interventions by HM Treasury and other bodies have raised questions from directors regarding the board’s independence.”

Last week, the Treasury select committee’s chairman wrote to the FCA’s acting chief executive requesting documents suggesting a Bank of England official oversaw its decision to cancel a banking culture review.

Recommendations from the report included agreeing an engagement plan for the chairman and chief executive, with annual evaluation processes.

“The chairman and the board need a clear and aligned view on the interpretation of the role and independence of the board, which can then be translated for stakeholders, in order to increase understanding,” it added.

Alison Loveday, managing partner at law firm Berg, took issue with the timing of the review’s publication and the fact that it was buried amongst almost 50 others, adding “it makes you question what’s going on at the organisation”.

She also expressed concern at the make-up of the board. “The numbers of people having to stand themselves down due to conflicts of interest, moving between consultancy, regulation and government.

“I think at a minimum, the FCA needs to be more transparent, it’s difficult to take the banks to task, what with their lobbying power and influence from the Treasury, but at least they could accept this is the case and making moves to counter the influence,” added Ms Loveday.

The review stated that given the nature and frequency of external interventions, it is critical that good governance and best practice is embedded into its composition planning.

It recommended the board should aim to be as influential as possible in the debate with HM Treasury about its own composition and tenure, to ensure it is fit for purpose, can add value and can constructively challenge.