The Financial Conduct Authority quietly stopped pursuing any formal action into reviewing whether HSBC’s Swiss private banking arm allegedly helped wealthy clients dodge tax between 2006 and 2007 months ago.
The news will undoubtedly piss off a lot of politicians and the public.
Why? — because this is the latest in a line of moves from the FCA that arguably hark back to the “light touch” approach to banks which caused politicians and market experts to accuse it, and the FCA’s predecessor the Financial Services Authority, of “falling asleep at the wheel” when it comes to keeping the banks in check and rooting out wrongdoing by enforcing the rules.
A source close to the FCA told Business Insider that after initially “looking into” the HSBC Swiss private banking scandal that plagued the bank in early 2015, it had concluded “several months ago” that “it was outside the FCA’s jurisdiction” and instead Britain’s taxman, the HMRC, is responsible for following up with HSBC.
The source added (emphasis ours) “there was no investigation in the first place, so there was nothing to drop.” And because of this, there was no obligation to tell the public.
The information told to Business Insider corroborates an earlier report by Sky News on Monday evening. Business Insider contact the FCA but it declined to comment on the report and to respond to criticism about whether this was the latest in a line of “light touch approaches to the banking industry.”
This isn’t the first time a review into banks was dropped
The decision to drop, I mean, discontinue looking into HSBC and not telling the public about it (even though the regulator doesn’t have to) is seemingly starting to form a pattern in the way the regulator deals with the banks.
On New Year’s Eve, the FCA scrapped a major report into Britain’s banking culture and instead chose to work directly with the banks behind closed doors. It is being viewed as a victory for the banks but the last straw for some politicians, businesses, and individuals.
Just like what the source told us today about the HSBC case that “there was no investigation, so there was nothing to drop,” a spokesperson at the time of the banking culture review scrap on December 31, said “if there is no review, there’s no findings.“
Regardless of the semantics or reasons behind the decision, which are fully detailed here in my previous report, at the end of the day it still means the public and politicians are in the dark.
Why this change in tact is a big deal
The reason why this will be such a big deal for the public and politicians is because after years of parliamentary hearings and huge reports into what led to the onset of the credit crisis, a toxic banking culture and lack of supervision and enforcement by the regulator were blamed.
Britain’s Parliamentary Commission on Banking Standards published a 500-page report in 2013 on the banking industry which blamed a “toxic culture” at banks which led to market manipulation and mis-selling scandals. It even called for new laws to imprison “reckless” bankers.
Meanwhile, the phrase “asleep at the wheel” was used against the FCA’s predecessor the FSA several times in relation to its role in the credit crisis, which wrecked the world’s financial systems and saw billions of pounds in taxpayers’ money used to prop up major banks.
These were just a few of the seismic issues that rocked Britain’s financial system following the credit crisis. Meanwhile other scandals emerged from that pit of despair over the last few years, including fraudulent selling of payment protection insurance, the fixing of the LIBOR interest rate, FX fixing, and the sale of complicated interest rate swaps to businesses that were too small to handle them, driving many of them into bankruptcy.
In other words, politicians and the public blamed the banks for their culture of reckless behaviour that led to the raft of scandals while also blaming the regulator for not supervising or enforcing the rules enough. No one wants a repeat of the credit crisis again.
So, is the FCA being a “light touch” regulator again? Well, only time will tell.
But considering the two discontinued public reviews into the banks, the removal of Martin Wheatley — who was seen as an intrusive regulator — as FCA chief, and the new CEO Tracey McDermott meeting with top bank chiefs since taking the reins from her predecessor in September, it looks like it’s not the same approach anymore.
NOW WATCH: Money & Markets videos
Business Insider Emails & Alerts
Site highlights each day to your inbox.