What is wrong with the FCA?

However, if the Financial Conduct Authority were a regulated entity, it would have been closed down.  

I am reminded of a 2016 speech by their former director of supervision – retail and authorisations, entitled ‘Getting Culture and Conduct Right’. 

He spoke of shifting mindsets and incentives, the role of all leaders being to encourage a culture of personal responsibility and impress upon all staff the value of good culture to the health of their business, and the financial services industry more widely.

Staff and morale

Culture is set from the top and success is intrinsically linked to staff morale. When 60 per cent of the FCA’s frontline leadership team are considering leaving the regulator, there is a major problem.  

The shambolic overhaul of the existing FCA bonus scheme, which meant that, prior to its recent climbdown, the FCA's removal of discretionary cash bonuses was seen as a cut to staff remuneration, while the officers were unaffected, highlights managerial ineptitude.

To add insult to injury, the FCA is using expensive consultants to cope.

Then there was the decision to move the regulator from Canary Wharf to Stratford. A location that reportedly made staff feel unsafe with "significant concerns" over "knife crime and gangs".

When they did move, there were reports of "verbal abuse, colleagues defecating on the floor in toilets, and leaving alcohol bottles in sanitary bins". 

It seems morale has been further damaged by the chief executive’s diversity agenda.

Staff progression should be free of prejudice or bias – be it race, gender, sexuality, religion or neurodiversity – but Nikhil Rathi appears oblivious to the detrimental impact on morale of his speeches over-egging positive discrimination. 

The December 2021 FCA board minutes refer to various monthly reports from numerous independent panels – the first issue cited is diversity and inclusion, then regulatory changes, then future regulatory framework, then the new consumer duty.

Is this really the prudent order for a regulator dealing with numerous scandals, regulatory failings, and market challenges? 

The top team 

There is no doubting that Rathi is a smoother operator and politically savvier than Andrew Bailey. But is he the right chief executive when he appointed Megan Butler as the new head of transformation, from a list of just two internal candidates, despite her culpability in LCF, detailed in the Gloster Report?

He then replaced her with another internal candidate, already with a full-time job as head of authorisations.  

What about the FCA board? It is the duty of the non-executive directors to provide challenge and oversight to the board to ensure better decision making. Reviewing the published board minutes, there is no evidence of a single FCA board decision challenged or reversed by a NED.

How did the NEDs not insist on an independent review, including the FCA’s own regulatory oversight of the £1bn Woodford scandal?  Why did they not challenge the Charles Randell ‘sole and primary cause test’ for their complaints scheme, which the Complaints Commissioner said “frustrates the object and purpose of s.87(5) of the Financial Services Act 2012”?

The FCA needs to conduct robust recruitment for an experienced change-maker as head of transformation. The Treasury should seek to refresh the entire NEDs, as well as instigate an independent review into the Woodford scandal as they did with LCF.  

The independent Complaints Commissioner should also be truly independent – not appointed by the FCA, and whose recommendations are often ignored by the FCA. 

Fraud   

In the first half of 2021, the Crown Prosecution Service reckoned that with an estimated 3.4mn incidents in the year ending March 2017, fraud is now the most commonly experienced crime in England and Wales. 

The issue that comes up time and again is the regulatory perimeter, which determines which activities the FCA regulates and therefore when it will or will not tackle financial misconduct.

Early in his tenure, Rathi said that the FCA would change its approach to more effectively tackle the issues of fraud risks that sit outside the perimeter, but there are still no details. He also stated that the senior managers regime was a possible tool for tackling fraud, but most people have no trust in this regime.  

A simple fix would be for the FCA to regulate a business and all the activities it is involved with, as other countries do.  

Whistleblowers 

Another effective fix would be to emulate the US example of how to value financial whistleblowers. Regulators and enforcement agencies in the US view whistleblowers as a citizens' army, crucial to addressing and deterring bad behaviour in the financial industry.  

Financial whistleblowers in the US are protected from both retaliation and financial ruin. In the UK, it seems the FCA views them with suspicion, and while the FCA has a dedicated division to handle calls, it appears inferior to the US. For example, in the US a senior financial investigator deals with such calls.

Overhaul the FCA’s enforcement function

It seems there is little naming and shaming by the FCA and relatively little evidence of much enforcement of rules. We have identified a whole wave of greenwashing and mis-selling but we are not aware of a single business or fund [we have identified] that has faced a fine or reprimand.

Why are compliance officers of failed businesses allowed to carry on being compliance officers instead of chief executives and compliance officers found to have been responsible for significant customer detriment being barred from the industry?

The ultimate role of the FCA is to protect financial consumers. While systemic failings need to be addressed by an independent review akin to the Kingman Review, effective actions from our September 2020 action plan ‘Towards a Better UK Financial Services Sector’ should be implemented. 

The British public deserves a financial regulator fit for purpose.

Gina Miller is the co-founder of the True and Fair Campaign