The Financial Conduct Authority (FCA) has been sharply criticised for failing to hold itself to the same level of accountability as the firms it regulates and for hiding behind collective responsibility.
In a severe rebuke of the regulator, the Treasury Select Committee of MPs criticised the FCA for seemingly not applying the same principles of its Senior Managers Regime to itself when there were organisational failings.
The committee emphasised there were “doubts as to whether the FCA board has met the standards which it seeks to impose on others”.
And it demanded a significant overhaul of the organisational culture at the FCA, calling for it to become more proactive, agile, decisive, and joined-up.
The committee made the statements as part of its report into the regulation and ultimate collapse of mini-bond provider London Capital and Finance (LCF).
‘Over-reliance on collective responsibility’
Several recommendations were made by MPs to tackle the situation and prevent a repeat with the most prominent being changes in culture and accountability at the FCA.
The committee said it supported the views of the current FCA leadership that the organisation needs to become a more “proactive”, “agile”, “decisive”, and joined-up regulator that is willing to act to protect consumers and financial markets.
And it pushed the FCA board to go further and set itself an end date for the transformation programme and create milestones at which changes in culture can be reviewed, which should be published.
But the MPs also criticised the regulator for not holding itself and its leaders to account.
“It is not readily justifiable for the FCA to require the firms that it regulates to adhere to the principles of the Senior Managers Regime but seemingly not to apply similar principles internally when there are failings of practice and culture in the organisation,” the MPs said.
“There are doubts as to whether the FCA board has met the standards which it seeks to impose on others. An over-reliance on collective responsibility may deny visible accountability and could lessen confidence in the organisation as a result.”
The committee acknowledged that the demands of some of these senior executive positions at the FCA are heavy, and that individual accountability for organisational failings may deter strong candidates from applying for them.
But added: “We are not wholly persuaded that the balance struck by the FCA on this occasion has strengthened its standing in the eyes of those it regulates or the wider public.”
‘Disappointing’ government action
In other recommendations the MPs called for the FCA to be more interventionist and make more frequent use of its powers rather than maintaining a culture of risk aversion.
The demand for the FCA to be given the power to recommend changes to the perimeter of regulation formally to HM Treasury was repeated.
And they criticised government action to prevent harm in the sector, saying it was “disappointing” that measures to address fraud via online advertising had not been included in the draft Online Safety Bill.
“This is a missed opportunity to help prevent another LCF-type event. The government must intervene urgently to include measures to address fraud via online advertising in the Online Safety Bill to prevent further harm to customers being offered fraudulent financial products,” they said.
Mel Stride MP, chairman of the Treasury Committee, said the collapse of LCF was one of the largest conduct regulatory failures in decades.
‘Profoundly sorry’
Health & Protection asked the FCA for a response to the specific criticisms from the committee.
An FCA spokesperson said: “We welcome the committee’s report and will be providing a formal response in due course. As we have said we are profoundly sorry for the mistakes we have made over LC&F and are committed to implementing the recommendations of The Gloster Report which are progressing at pace.
“The FCA has embarked on a wide ranging transformation programme to build a data-led regulator able to make fast and effective decisions and we are providing the committee with updates on our progress.
“We agree with the recommendation that fraud via online advertising should be included in the Online Safety Bill, as online platforms are now the single biggest channel of financial scams and fraud.”