Since the economic collapse of 2007/08 there have been many reviews by the financial regulator and many other organs of the Government. Many reports have been produced.
In the 2015/16 Business Plan issued by the Financial Conduct Authority, and as set out in very great detail at their annual conference, the FCA trumpeted their biggest and most important review since the end of the reviews into the collapse. They were going to undertake a “thematic review” (just a formal and official investigation) into the pay and culture in banks and finance houses. You can see their business plan here:
John Colvin, a partner in berg’s dispute resolution team, attended their annual meeting in July 2015 where the FCA explained this review. The review promised a comprehensive assessment of the cultural and conduct issues behind the collapse to avoid their future repetition. The FCA was to put the lessons learned into regulatory practice for the benefit of the public.
That review has now been cancelled without any public comment by the FCA as to its reasons.
Why was it such an important review?
The Banks collapsed in 2007/08 for many varied reasons. The vast majority of those reasons ultimately rested upon people employed by Banks who sold products around the world and in doing so sought to make greater profits by acting outside of the rules and, in many cases, their moral and professional duties. The catalogue of misconduct is substantial; PPI, Interest Rate Hedging Products (“IRHPs”), securitised mortgages, buying and selling commodities, benchmark manipulation, Foreign exchange manipulation and the aggressive sale of completely unsuitable commercial and mortgage loans onto customers that had no ability to repay the loans. This led to the collapse initially of the property market and thereafter the western economies themselves. Banks and finance houses around the world collapsed leaving long-term damage to the global socio-economic fabric.
Now that the regulators and Governments have dealt with the many systemic problems, the FCA announced in March 2015 its business plan for 2015/16. It held an annual meeting in July 2015 to discuss its plans.
The central plan was to investigate pay and culture and ensure that many of the previously errors – largely driven by greed – no longer results in customers being abused and economies put at risk. Comments by the FCA at that meeting are as follows:
“Accountability is no longer an optional extra. We work closely to ensure the continuation of market freedom but at the same time introducing appropriate checks and balances regarding accountability.”
“Regime is proportionate. Culture begins at the top.”
“Where we find poor behaviour we will act. Culture of the trading floor must reflect that that the public would expect to see.”
“It is imperative that customers have confidence in the regulator. We do not want to regulate for regulations sake, but to help businesses work together with us and instil customer confidence. … The financial sector needs to win back the trust of the public. Customers need to have confidence in the suitability of the products that they are sold and ultimately need.”
FCA Cancels Reviews
On 31st December 2015 the BBC confirmed the review into culture & pay had been cancelled. The FT and the Times followed. The FCA has not issued a press release about this (or that they had decided to stop investigating HSBC over Swiss Bank accounts and tax). On 6th January 2016 they advised berg that they have no plans to issue a press release about it. We only received a formal response on 6th January 2016 because we demanded a response.
It is noteworthy that the chief executive of the FCA was sacked in 2015. He is alleged to continue to offer assistance to the board until January 2016. The FCA has recently hired new senior decision makers that have, in industry, worked as partners in law firms where they have usually represented the interests of banks. Questions of impartiality are now becoming more regular.
Despite the statements of the FCA that the public was central to their thinking and the regulator needed to have the confidence of the public, the FCA has been found lacking and subject to scrutiny. They were heavily criticised over their handling of HBOS and the regulatory prosecution (or lack thereof) of the executives and chairman at HBOS. They have not covered themselves in glory less than six weeks after that scrutiny.
Following those criticisms, the FCA has completely forgotten its statement of intent in July 2015 and has elected not to publicly comment on this by putting a note on its website or issuing a press release. Hiding behind closed doors will only serve to diminish public confidence even further. Rather than being publicly accountable the FCA has allowed rumour and misunderstanding to flourish and only confirms its decision where someone directly asks them. That is not the kind of regulator we were led to believe we would have.
Fall-Out From Cancellation – What The FCA Is Doing
berg’s managing partner, Alison Loveday, has questioned who exactly is behind the recent decisions of the FCA and why they are not being publicly discussed. The FCA has now ended its largest and most important review, but has additionally ended its HSBC investigation regarding its use of Swiss bank accounts for tax avoidance, a review into the incentives being paid to sell products which led to PPI and IRHP sales, and, finally, they have also cancelled an investigation into the use of private data by insurance companies. The removal of all of these reviews only benefits banks and insurers and does nothing to benefit customers and certainly does not benefit the tax payer that is funding the banks and the FCA.
Treasury Select Committee Potential Involvement
The Treasury Select Committee has let it be known that they now expect to question the FCA over this policy u-turn. Additionally, the current interim Chief Executive, Tracey McDermott, has released a press release to make clear that she does not wish to take up the role full-time, contrary to the rumours being published recently. Given the treatment she received in regards to her record on HBOS this should not really come as a surprise.
To find out more about the issues raised in this post, or to discuss any issues that may be affecting you, get in touch today with our Banking & Finance team on 0161 833 9211.
The information and opinions contained in this article are not intended to be comprehensive, nor to provide legal advice. No responsibility for its accuracy or correctness is assumed by berg or any of its partners or employees. Professional legal advice should be obtained before taking, or refraining from taking, any action as a result of this article.