The Treasury has this week launched a review into how the Financial Conduct Authority (FCA) conducts its dealings with the City.
Specifically, Chancellor George Osborne is keen to examine whether the FCA – together with the Prudential Regulation Authority – are striking the “appropriate balance of fairness, transparency, speed and efficiency”.
It might seem the Chancellor has it in for the regulator: last month he publically accused the watchdog of an “egregious” error in the way it briefed the media on market-sensitive information in its annual business plan, which ultimately lead to a major fall in insurance shares. He did, however, follow this up with praise for the FCA’s broader work.
Instead, it appears the watchdog has become a bit too keen to bite rather than simply bark. The FCA takes a far tougher line with City wrongdoers than its predecessor, the Financial Services Authority, with the total value of fines increasing from £35m in 2009 to a record £472m in 2013 although it is worth noting that with exceptional fines for the Libor scandal removed, this total drops to £342m). Individuals, rather than corporations, are also increasingly being targeted.
There’s no doubt the FCA means business. Take for example a recent case concerning an appeal by by the directors of a land banking firm accused by the regulator of illegally running the land bank as a collective investment scheme without authorisation. The appeal was ultimately thrown out and the directors were forced to pay the FCA £21m as part repayment for investors.
While I don’t doubt the decision was the right one and the FCA should be congratulated for its tenacity, I was rather taken aback by the comments made by the watchdog immediately afterwards.
“This is a clear warning to any firm selling dubious investments and I reiterate it today: we will come after you, we will shut you down, and we will do whatever we can to ensure money you have taken, no matter how much – or little – is left, is used to reimburse your victims,” said director of enforcement and financial crime, Tracey McDermott, who I suspect has seen Liam Neeson’s performance in Taken a few too many times.
Lawyers seem to think it is this over-zealous approach, together with overly-lengthy investigations, that has sparked the review, with concerns that too many cases being referred from the FCA’s supervisory division to enforcement.
With the FCA appearing to successfully be fulfilling the brief it was handed, some might question the thinking behind the review. Others meanwhile, might suspect the FCA’s actions are at least in part being driven by a desire for good PR in the aftermath of the financial crisis.
We will have to wait until later this year to find out the outcome of the report might be, but any decision will need to be balanced. The government clearly doesn’t want a regulator which might scare off new business, but a defanged watchdog is of no use to anyone.
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