Regulation  

FCA appoints a banker to regulate the banks

FCA appoints a banker to regulate the banks

Dr Andrew Bailey, the former chief cashier of the Bank of England (BoE) and current deputy governor for the Prudential Regulation Authority (PRA) has been named as the next CEO of the FCA, replacing the interim Tracey McDermott.

With the light-touch tone on regulation coming from the government recently, is anyone really surprised that a well respected banker has been appointed to regulate the banks? I had tipped Andrew Haldane for the top job at the FCA, it appears Chancellor Osborne has selected a more mature and experienced candidate. You might even use the word moderate.

Mr Bailey, a BoE veteran of 25 years, holds a doctorate from Queens College, Cambridge, is an acknowledged expert in banking and regulatory strategy, and has worked on special projects within the PRA to help move banking culture forward. He helped shape the 2008, post-crisis tripartite regulatory structure, together with the implementation of strategies to dampen down the banking crisis instigated by the collapse of Northern Rock.

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When George Osborne failed to renew the former FCA CEO Martin Wheatley’s contract in 2015, it possibly signified a shift in regulatory strategy. In 2014, the FCA had fined the banking sector over £1.4bn, just over £400 million more than in 2013. Everyone was fully aware, although useful cash for the government coffers, that fines are a blunt tool when it comes to changing banking culture.

The constant barrage of fines did little good as culture was already changing and simply alienated the industry. In the face of such regulatory adversity the bankers retorted with threats to leave London and the UK for countries that offered a friendlier atmosphere and less stringent regulation. We might surmise that high-ranking bankers and those with vested interests have been whispering in Chancellor Osborne’s ear that the FCA needs to relax.

The government is perhaps keen to end a regime of regulation based on banking fines and would also prefer a conclusion to the PPI fiasco which is still causing huge write-offs on balance sheets. Recently the FCA announced it was indeed scrapping its thematic review into banking culture, which resulted in complaints from many MPs. Since 2008 the FCA has blamed culture, bonuses and excessive bankers’ pay for the crisis;it would appear foolhardy not to pursue a full investigation, unless the regulator was looking for a clean slate and a new start.

Although Mr Bailey maybe celebrating, he will be aware the role of CEO of the FCA appears a fraught occupation and pretty thankless. If he is too tough, the government, keen to keep bankers onside, will ask quietly for more fairness; if he is more fair, MPs and key consumer stakeholders will accuse the regulator of being in bed with the banks.

George Osborne has suggested Mr Bailey will be “tough but fair” and that he fully understands both the “flaws and merits” of the banking sector.

Bankers knew that alienating and fining banks simply could not continue, the government does not want an exodus of banking headquarters from London or indeed any threat to its main source of economic growth. Fining banks, in reality costs the customer and shareholders, who have nothing to do with the banks’ poor integrity and ethical stance.