"The APPG’s report on the FCA pulls no punches; and rightly so. It’s a justifiably hard-hitting critique of the regulator; a regulator that I have been convinced for quite some time to not be fit for purpose. "
- The Lord Sikka
A hard-hitting report from an All-Party Parliamentary Group calls into question the integrity of the FCA, which it says is "widely seen as incompetent".
The All-Party Parliamentary Group on Investment Fraud and Fairer Financial Services' Call for Evidence resulted in the submission of 175 detailed written responses from people who have had cause to interact with the FCA.
The Group says it has heard widespread criticism of the regulator from a range of independent sources, including external reports on the poor handling of the London Capital & Finance, Connaught, Interest Rate Hedging Product and British Steel Pension Scheme scandals.
Testimony received accuses the FCA of slowness, inaction, complacency, opacity, unaccountability and even dishonesty.
The APPG says a "significant number of respondents believe the FCA sometimes acts in bad faith", says its "treatment of whistleblowers and their evidence is alarming", and believes there is a "defective organisational culture, driven from the top".
The report sets out a series of recommendations that consideration should be given to, including the need for government intervention, changing how the regulator is funded, and the establishment of a Financial Regulators’ Supervisory Council, which would conduct periodic reviews of the operational effectiveness of the FCA.
It also discusses the removal of the FCA’s immunity from civil liability to consumers, the introduction of a statutory Duty of Care, and overhauling how the FCA’s senior leadership team is appointed.
Many respondents even debated whether the FCA should be abolished or reformed.
The report reveals that its panel were so concerned about the depth and breadth of the problems that "serious consideration was given to the idea that the FCA should be completely scrapped and replaced with a new entity, because the existing leadership team in the existing organisation might just get in the way of the necessary changes".
However, it stressed that replacing the FCA with a new entity will not work if the blueprint for the new entity is essentially the same as the existing one, as happened when the FSA became the FCA.
The report says: "If the underlying reasons for the FCA’s failure are not dealt with, history will repeat itself and the new entity will either immediately or eventually morph into another failing regulator with little more than a change of name over the front door."
It concludes: "The FCA is seen as incompetent at best, dishonest at worst. Its actions are slow and inadequate, its leaders opaque and unaccountable.
"It is tempting to claim that the FCA is now ‘drinking in the last-chance saloon’. 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."
Click here to read the full report.
Bob Blackman, co-chairman of the All-Party Parliamentary Group, commented: “The Purpose Statement of our APPG is: ‘To advocate for the victims of financial misconduct, crimes, scandals, frauds and regulatory failures, by driving positive, progressive, and purposeful reforms that achieve a fair, trusted and just system... where the service providers, regulators and government agencies provide appropriate protection and deliver good outcomes, including redress for historical wrongs.’
"As such, the conduct and performance of the FCA is of great interest to us. The FCA responded to the excoriating criticism it received about its poor performance by launching a Transformation Programme. Unfortunately, the testimony received by the APPG in response to its Call for Evidence indicates that this programme has been a failure. The FCA’s deep-rooted cultural problems, described so forensically by the series of external reports, are still there; if they weren’t, the FCA’s handling of recent issues such as the Woodford, WealthTec and Philips Trust Corporation scandals would have been satisfactory.
"The report contains over 380 pages of analysis of the testimony provided by more than 170 individuals who kindly gave evidence. Those who did so included FCA employees, past and present. The report also contains insightful observations by an external panel from academia, consumer advocacy, financial journalism and trading standards.
"The human suffering caused by regulatory failure is catastrophic. The APPG dedicated its report to the memory of the late Ian Davis (RIP), a former investor in bonds issued by London Capital & Finance plc, an infamous investment scam for which the FCA was heavily criticised.
"The Government has reasons for concern in that the trust deficit in financial services is acting as a brake on growth, the opposite of what any administration wants for the economy. Whether the FCA should be reformed or replaced is one of the key questions that the independent panel considered at length - their thoughts, and the evidence their thoughts were based on, will be there for everybody to read on 26th November.”
The Report includes comments from various Parliamentarians:
The Lord Fox: “As uncomfortable as it may be for the FCA’s leadership team to study the evidence-based critique that has been produced, I do hope it can take the analysis and recommendations as they are intended – as helpful pointers for where reforms are needed.”
Bambos Charalambous MP: “One thing is certain - it is vital that such an important sector for the UK economy as our financial industry is regulated by an organisation that we can all have trust and confidence in; and it's clear we’re a long way away from that at the moment.”
Ben Lake MP: “The level of financial crime that ordinary people are exposed to these days is totally unacceptable and we know the consequences of it can lead to long term financial and emotional carnage for the innocent individuals unfortunate enough to become victims. Whilst I don’t just hold the FCA responsible for this failure to protect, it is a matter of fact that the FCA has a duty through Parliament to provide an appropriate degree of consumer protection.”
The Lord Sikka: “The APPG’s report on the Financial Conduct Authority pulls no punches; and rightly so. It’s a justifiably hard-hitting critique of the regulator; a regulator that I have been convinced for quite some time to not be fit for purpose. The FCA is complacent, conflicted and captured; and without a major overhaul it will never deliver on the responsibilities Parliament has given it to protect consumers. For all these reasons I am proud to stand behind what is a remarkably detailed, forensic and credible body of work. Well done to all involved, particularly those that stepped forward to give evidence, especially the former and existing FCA employees."
Financial Reporter has contacted the FCA for comment.
