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UK lawmakers have lambasted the Financial Conduct Authority (FCA) in a cross-party report that calls for the agency to be reformed, if not abolished.
A new report by the All-Party Parliamentary Group (APPG) on Investment Fraud and Fairer Financial Services has signalled that the FCA’s days may be numbered unless the agency undergoes major reforms.
The 358-page report, published this week, is based on 174 written responses from “people who have had cause to interact with the FCA other than in the course of business”.
This includes consumers, industry whistleblowers, the FCA’s own staff and leaders of other relevant government agencies and departments.
The APPG, chaired by Conservative MP Bob Blackman, concludes that the picture painted by the responses is “not pretty”.
“The FCA is seen as incompetent at best, dishonest at worst,” the APPG writes. “Its actions are slow and inadequate, its leaders opaque and unaccountable.”
The APPG calls for an “urgent and energetic” response from the FCA to address the concerns and recommendations highlighted by the report.
If not, the lawmakers suggest that it could be time for stakeholders to shift the debate on the FCA from reform to replacement.
“It is tempting to claim that the FCA is now ‘drinking in the last-chance saloon’,” the report notes. “But the problem is worse than that: the bar is about to close, and the regulator is at risk of being thrown onto the street.”
Key findings of the report
The report claims that the FCA is “widely seen as incompetent” and failing to perform its functions to a reasonable standard.
This view is particularly strong in relation to the FCA’s consumer protection remit, where critics claim that the agency is slow to spot and identify fraud and other misconduct.
“When it does respond, its responses are inadequate, and it is insufficiently assertive in securing redress for consumers and penalising perpetrators,” said the APPG.
A significant number of respondents also believe the FCA acts in bad faith. These allegations came mainly from alleged victims of misconduct by banks, who claim that the regulator has been captured by the interests of banks and other large authorised firms.
Other respondents claim that the FCA displays a lack of honesty and transparency when called to account for its own decisions, actions and inactions.
“While some allegations are unevidenced, there are too many for these to be easily dismissed, especially since some others are supported by either circumstantial or case-specific evidence,” said the APPG.
Testimony from whistleblowers indicated that the FCA fails to properly investigate and act on intelligence, and that it fails to protect, and in some cases actively harms, those who come forward with information.
Similarly, current and former employees depicted the FCA as having a “defective” culture where errors and inaction are driven from the top down.
Respondents said that those who challenge the "official line" on any given issue are bullied and discriminated against, or even managed out.
“It is clear that any journey toward rebuilding confidence must be anchored in measures to lift the current cloak of opacity and lack of consequences for failure,” said the APPG.
APPG’s independent recommendations
The APPG said its primary objective in producing this report is to “provide ideas” and “stimulate debate” about how the FCA’s shortcomings might be addressed and its performance improved.
To this end, the APPG assembled a Recommendations Panel made up of 11 independent experts from across the public and private sectors.
These panellists include: Roger Mullins, a former SNP MP; Louise Baxter-Scott MBE, a member of the government’s Joint Fraud Taskforce; and David Llewellyn, emeritus professor of economics at Loughborough University and former economist at HM Treasury.
The panel proposed changes that could be implemented unilaterally by the FCA and changes that could be implemented by the government.
On culture and governance, the panellists suggested that the FCA must hold itself to the same standards that are applied to regulated firms.
On accountability, the panellists suggested the FCA currently suffers from a lack of clarity as to who it is accountable to, and related conflicts of interest.
A particular issue is the role of HM Treasury and the extent to which the FCA should be accountable to it, the report notes.
“The danger is that accountability to the Treasury may introduce, or be thought to introduce, unwarranted political interference in the role of the FCA.
“A particular example has recently arisen whereby the Treasury is now requiring the FCA to adopt fostering economic growth as a subsidiary objective even though that could conflict with consumer protection.”
The panellists also want to see an end to “revolving door” practices where personnel leave regulated firms to join the FCA.
“Clear rules and guidelines should be enforced governing movements of personnel between the FCA and regulated firms,” they said.
Finally, the report calls for more protection for whistleblowers, whose employers often act adversely against them.
The panellists suggest: clear rules within regulated firms; and rules and behaviour in the FCA to guarantee anonymity and support to whistleblowers.
“This is needed in the interests of whistleblowers, but also the FCA itself, as without such credible and enforced assurances, the supply of information will be reduced,” the report notes.
“There are known to be many examples of whistleblowers who have suffered professionally and mentally through lack of protection either by their employers or the FCA.”
