Some of Britain’s most influential MPs have recommended the break-up of the ‘overloaded’ Financial Conduct Authority (FCA).
In a strongly worded special report into the collapse of HBOS during the financial crisis, the Treasury Select Committee calls for the FCA to separate out its enforcement division to make a third regulatory body alongside the FCA and the Prudential Regulation Authority (PRA) department of the Bank Of England.
The comments were reinforced by committee chairman Andrew Tyrie who says the FCA is ‘in special measures.’
The HBOS report says of financial regulation in the UK: “There is a danger, especially with the FCA, that its multitude of objectives and initiatives are leading to regulatory overload.
“An FCA with fewer objectives, and a single separate body responsible for enforcement, would probably result in better accountability and better outcomes.”
The overall report found serious errors in the way the FCA’s predecessor – the Financial Services Authority (FSA) – handled the collapse of HBOS in 2008.
It also comments: “It is regrettable that the FSA (and subsequently PRA & FCA) agreed to undertake these reviews only following sustained pressure from the Treasury Committee over a number of years.”
Outdated and unfair
Examining the roles of the FCA and PRA it says: “The current system, whereby the same organisation both supervises, applies and prosecutes the law is outdated and can be construed as unfair.
“By moving enforcement away from supervision, it can focus independently on undertaking its key functions: interrogating evidence and assessing whether a regulatory breach has been committed. This could increase confidence in the impartiality of regulatory enforcement decisions, and facilitate objective scrutiny of supervisors’ actions by enforcement staff.
“Separation would allow all three regulators – the FCA, PRA and an enforcement body – to enjoy much greater clarity over their objectives.
“There is a danger, especially with the FCA, that its multitude of objectives and initiatives are leading to regulatory overload. An FCA with fewer objectives, and a single separate body responsible for enforcement, would probably result in better accountability and better outcomes,” it concludes.
Mr Tyrie says that FCA internal audit reports show ongoing concerns about wholesale supervision in retail banks.
He says: “The first three years of the FCA’s life have been very difficult, to put it mildly. The regulator has been in special measures for some time.”