‘Incompetent’ UK regulator in need of radical change, reveals MP report

UK financial regulator the Financial Conduct Authority (FCA) is “incompetent at best, dishonest at worst”, according to the findings of a report put before parliament by a cross-party group of MPs and members of the House of Lords. The report says the regulator fails “too often” and needs to be radically overhauled to address an underlying “problematic” culture and reduce the risk of regulatory failure scandals. The report published by the All-Party Parliamentary Group (APPG) on Investment Fraud and Fairer Financial Services accuses the regulator of being “opaque and unaccountable” as an organisation, “slow to act and even slower to admit it has got things wrong and to change”. Following a two-and-a-half year long inquiry, triggered by criticism of the FCA in protecting pension savers from scams as well as several corporate failures, the APPG collected testimony from 175 respondents, from employees to victims of financial crime, who documented their experiences of financial losses from scams. Bob Blackman, MP and co-chairman of the APPG, said some of the most compelling evidence came from current and former employees of the regulator, depicting the FCA’s culture and leadership as “profoundly defective”. It also found the FCA has failed to act on information from whistleblowers from within the industry. Blackman said the regulator has not gone far enough to change in the time it has taken to complete the report, despite implementing a transformation programme. “As the final stages of this report were being concluded, the FCA has continued to consistently demonstrate that it has failed to shake off the problematic culture that is at the heart of its problems,” Blackman said. The APPG report calls for reform of the FCA, rather than reinvention, and said some changes may need legislation. It adds that it considered proposals to reduce the FCA to a conduct regulator, moving its other regulatory responsibilities to existing regulators, to reduce the scope for competing interests at the regulator across its four objectives set by the government. It says that while it recognises “there is not currently a widespread appetite for such radical measures”, the UK risks an inquiry into financial regulation on the scale seen in Australia in 2019 as part of the misconduct in banking review. Further, it said a Royal Commission inquiry to propose radical reform “might be the most appropriate forum for considering whether there is a need for generational changes to financial regulation”, including stripping back the regulator’s remit. “The panel accepts that its proposals may not be implemented wholeheartedly or at all by the FCA, and that they may therefore fail; for this reason, it has also flagged up that in the event that the FCA fails to win the confidence of stakeholders, a fundamental reallocation of regulatory responsibilities may in time be required,” the report says. It lists a range of changes that could be made by government, including removing the FCA’s immunity from civil liability to consumers and replacing the FCA’s leadership team. It also proposes reviews of the operational effectiveness of the FCA, restrictions on whether and when regulators can join regulated firms, stripping out conflicts of interest in the FCA’s objectives, and changes to the way the FCA is funded and how leadership is appointed. The panel lists changes for the FCA leadership to implement as soon as possible, including a consumer-centric mission statement that holds the regulator accountable to a consumer oversight body, a reward and promotion system aligned with its objectives and values, a no tolerance policy for lack of integrity and a specialist consumer-facing department for victims of scams. “The time for action is now,” the report says, warning that: “There must be a risk that levels of misconduct and poor customer outcomes in UK financial services are higher than they should be, and that levels of trust in the industry at home and abroad are being negatively impacted, with consequent impacts on transaction levels and access to overseas markets.” It urges the FCA and government to implement its recommendations. “Should this not happen, we fear that more high-profile misconduct and regulatory failure scandals will occur, causing further deterioration in the standing and fortunes of the industry,” it warns.

‘Incompetent’ UK regulator in need of radical change, reveals MP report

The damning report says a ‘problematic’ culture lies at the heart of the Financial Conduct Authority

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