Parliament’s Treasury Select Committee (TSC) has recommended that the Financial Conduct Authority (FCA) is split into two. The Committee believes that the FCA should retain responsibility for supervising the conduct of financial services firms, while a new organisation would be set up to handle enforcement matters – imposing fines and bans on firms and individuals that fail to comply with their obligations.
The recommendation is largely driven by evidence that a lack of dialogue and coordination between the supervision and enforcement divisions of the FCA contributed to the collapse of HBOS and the need for its parent company, Lloyds Banking Group, to receive a massive taxpayer-funded bailout.
The TSC made reference to a Parliamentary Commission on Banking Standards report from 2013, which referred to “inherent tension” between the two divisions.
The only individual from HBOS against whom enforcement action was taken was former corporate division chief executive Peter Cummings. He was fined £500,000 and prohibited from carrying out significant influence functions by the Financial Services Authority – the FCA’s predecessor – in 2012. The FCA does not believe it can fine other HBOS executives as the statute of limitations has expired.
The Treasury has previously rejected similar proposals to split the FCA’s responsibilities, but with a new Chancellor of the Exchequer, Philip Hammond MP, now in place, it is possible that the issue could be re-considered.
The TSC also referred to the FCA experiencing “regulatory overload” and added that:
“The current system, whereby the same organisation supervises, applies and prosecutes the law, is outdated and can be construed as unfair.”
TSC chairman Andrew Tyrie MP said:
“The case for placing the FCA’s enforcement function in a separate body – proposed…in 2013 and later rejected by the Treasury – has been strengthened by the findings of Andrew Green’s report [fusion_builder_container hundred_percent=”yes” overflow=”visible”][fusion_builder_row][fusion_builder_column type=”1_1″ background_position=”left top” background_color=”” border_size=”” border_color=”” border_style=”solid” spacing=”yes” background_image=”” background_repeat=”no-repeat” padding=”” margin_top=”0px” margin_bottom=”0px” class=”” id=”” animation_type=”” animation_speed=”0.3″ animation_direction=”left” hide_on_mobile=”no” center_content=”no” min_height=”none”][a previous report into the HBOS collapse]
“A separate body would bolster the perception of the enforcement function’s independence, and provide the regulators with greater clarity over their objectives. The case for separation merits serious re-examination. The Treasury should appoint an independent person to undertake a review.”
In a statement, the FCA said:
“Much has already changed since the period considered in the HBOS report with the FCA learning valuable lessons from its predecessor including changing a number of its processes.
“As we have previously stated the ultimate responsibility for the failure of HBOS rests with the Board and senior management. They failed to set an appropriate strategy for the firm’s business and failed to challenge a flawed business model which placed inappropriate reliance on continuous growth without due regard to risks involved. In addition, flaws in the FSA’s supervisory approach meant it did not appreciate the full extent of the risks HBOS was running and was not in a position to intervene before it was too late.”
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