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FCA boss promises a pro-active assault on unacceptable cultures and lousy outcomes

December 12, 2013

Martin Wheatley, chief executive of the new financial watchdog, the Financial Conduct Authority, is setting the bar for judging the effectiveness of his new regulator very high. Well, a lot higher than most of the previous incarnations of financial regulation. In many people’s minds that won’t be saying much.

The news yesterday of yet another massive fine being levied on a financial institution for fleecing its customers is especially depressing. The fine levied on Lloyds wasn’t for anything in the distant past but for actions since the banks screwed up the world and, what’s more, since it was bailed out by public money and became state-owned but, crucially, not state controlled. Perhaps those who said we didn’t want civil servants and political nominees on the board of the bank will now admit they were wrong. They couldn’t be more venal than the bankers.

Anyway back to Mr Wheatley.

FCA boss Martin Wheatley

FCA boss Martin Wheatley

He was speaking to an ICI Global conference this week and told the audience that challenging the culture that has led to the constant stream of scandals was his key priority: “If you are looking for a useful bell-weather of FCA direction this is it: a more probing analysis of culture and ethics versus rules. A more assertive focus on wider markets as opposed to picking off individual firms one-by-one”.

This is a theme that has been prominent in Mr Wheatley’s recent speeches and which he elaborated when speaking at the All Party Parliamentary Group on Insurance & Financial Services last week. He was at pains to stress to MPs that the FCA will be different: “We want to be forward-looking as opposed to relying on backward looking, box ticking compliance…This will mean a willingness to engage early and give our views on what is right and what is wrong”.

While being questioned by MPs he revealed more of his distrust of a purely rules-based approach: “Under previous regimes we saw firms that were fully compliant were still delivering lousy outcomes. We need to challenge that”. One of his key tasks as the FCA beds down is to reach out to a wider range of organisations such as consumer groups, the Financial Ombudsman, Money Advice services and so on: “this will help us spot problems that are not going to come through the routine regulatory monitoring”, he said.

Any hint of trouble in a sector will see the FCA launch a “themed review” which he wants to take no more than six months from start to finish (typically similar exercises undertaken by the old Financial Services Authority took up to 18 months). He already has several topics on his list such as comparison websites, general insurance add-ons and mobile phone insurance, not to mention payday loans.

All of this sounds very fine, especially the focus on cultures and outcomes for the customer. Also, the willingness to be pro-active is very welcome at least until you find yourself caught up in a pro-active strike on a sector by the FCA. This will require nerves of steel on the part of Mr Wheatley and his team. They will frequently be accused of damaging successful markets, stifling innovation, undermining the financial services industry and jeopardising the City of London’s position in global markets.

One hopes that the FCA will often be proved right in the areas is chooses to investigate with this much needed pro-active approach. However, there are bound to be times when it will go wading in and find little, if anything wrong. The industry is going to have to be very grown-up to cope with this. Is it ready to display such maturity? The signs are not good.

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