The new head of Britain’s financial watchdog says “the future needs to be radically different from the past” when it comes to the conduct of financial services companies.
The Financial Conduct Authority (FCA) on Wednesday launched its new “Mission,” a document setting out how new CEO Andrew Bailey sees the regulator’s role in promoting market competition, protecting the consumer, and cracking down on misbehaving firms. The FCA regulates the conduct of around 56,00o finance companies in the UK.
Bailey, who joined 4 months ago, writes in the documents introduction that Britain had “two financial crisis in the last decade” — the first is the 2008 banking collapse and “the second crisis has involved the conduct of business by financial firms.”
He highlights Payment Protection Insurance (PPI) misselling, LIBOR and FX rates rigging, misselling of interest rate hedging products to businesses and money laundering scandals as just some of the examples of conduct problems Bailey dubs the “second crisis.”
“This is a very sorry history, and the future needs to be radically different from the past,” said Bailey. “We owe this to the public who are the consumers of financial services.”
The publication of the FCA’s new mission coincides with Lloyds announcing it is setting aside another £1 billion ($1.2 billion) to cover claims of PPI misselling. The UK’s 5 biggest banks have set aside a combined £32 billion to cover misselling claims.
This is a very sorry history, and the future needs to be radically different from the past
The FCA came under fire from politicians and the public earlier this year for reverting to “light touch” regulation of The City’s banks, despite several scandals in which those banks have been caught cheating. A lawyer and business lobby group representative told Business Insider that the regulator’s failure to produce two reports on banking ethics rendered it “not fit for purpose.“
The document comes just a day after the FCA was heavily criticised in a report on financial regulation from think tank New City Agenda. The 150-page report claimed the regulator suffers from “variable quality of staff, excessive box-ticking, a culture of secrecy, a lack of willingness to use new powers granted by Parliament, a lack of clarity about what the regulator was trying to achieve, a lack of independent evaluation, internal silos and poor engagement with small players.”
The think tank report adds: “Leadership changes and the perception of political interference are in danger of making the FCA into a timid and cowed regulator.” Former FCA CEO Martin Wheatley was widely seen to have been forced out by the Treasury under George Osborne.
The FCA’s new “Mission”
The FCA’s new “Mission” is designed to “provide a guiding set of principles around the strategic choices the FCA makes,” according to the press release announcing it, but it is also no doubt an attempt to repair the regulator’s reputation.
The “Mission” covers how the FCA should look to protect consumers, special measures for vulnerable consumers, when the FCA should intervene, how the FCA should properly regulate markets and encourage competition, and consumer redress.
While Bailey’s introduction suggests a more consumer-focused approach to banking regulation, the document itself is fairly even-handed in balancing consumer and company interests.
The FCA also stops short of endorsing a legal introduction of a financial “Duty of Care” for companies over their customers, something consumer groups have called for. The FCA says that “on balance” it does not believe it is necessary as the FCA’s code already requires companies to look after their customers.
The FCA will now begin a consultation process, taking feedback on its “Mission” from finance firms, consumer groups, politicians, and other interested parties before it becomes a final policy document.
Bailey says in the release announcing the new document: “The Mission will only be a success if our stakeholders engage with us through this consultation process. We want this to be a very open process. Out of it, we hope that we can set out a clear path ahead for financial conduct regulation in the UK.”