FCA is ‘incompetent’ and transformation plan a ‘failure’, MPs say
The Financial Conduct Authority (FCA) is “incompetent” and “defective” and attempts to transform itself over the past four years have been a “failure”, according to a damning report by a group of MPs, set to be revealed tomorrow.
In a more than 350-page report compiled over three years, the All-Party Parliamentary Group on Investment Fraud and Fairer Financial Services has criticised the City watchdog as an “opaque and unaccountable organisation” that is “slow to act and even slower to admit it has got things wrong and to change”.
The report, compiled through testimony from 175 whistleblowers, former employees and its own staff, paints a scathing picture of the regulator and suggests its oversight has been hamstrung by an overly close relationship with the firms it regulates.
Whistleblowers have also suffered “tragic tales of regulatory failure” as a result, the group of MPs said.
“It is tempting to claim that the FCA is now ‘drinking in the last-chance saloon’,” the report, seen by CityAM, reads. “But the problem is worse than that: the bar is about to close, and the regulator is at risk of being thrown onto the street.”
Former staff interviewed by the cross-party group, which include Tory MP, Bob Blackman, Labour MP John McDonnell and John Glen, a former Conservative City minister, also sounded the alarm over the internal culture of the watchdog, with staffers complaining “its culture and leadership [are] profoundly defective”, the report said.
“FCA culture deters staff from challenging and there is a soft bullying culture to prevent challenges being raised,” one former staffer quoted in the report claims.
I saw this take the form of individuals being required to work standard nine to five hours rather than flexibly and being awarded zero pay rises despite contributing similarly to those who did not challenge.
Under chief Nikhil Rathi, the FCA has pushed through a £320m turnaround plan designed to tighten controls in the wake of a series of City scandals, including the collapse of Neil Woodford’s investment fund and a Ponzi scheme run by London Capital and Finance.
However, the report claims the plans have so far been a “failure” and more stringent policing of the regulator was needed by parliament.
The group proposed establishing a Financial Regulators Supervisory Council to oversee the activities of the FCA and giving the regulator new powers to ban products with immediate effect. It has also suggested that the FCA should take unilateral measures including publishing details of its own powers and defining what “regulated by the FCA” means.
“We strongly reject the characterisation”
The report will add to mounting pressure on the regulator after a year in which it has faced fury from MPs and City firms for tangling the industry in red tape and hampering growth.
While the watchdog was given a secondary objective to promote growth and competitiveness last year, it has faced backlash for the perception it has failed to heed its new mandate. The City and Westminster reacted with fury earlier this year when it revealed plans to ‘name and shame’ the firms it is investigating.
The FCA rejected the characterisation of the report today, saying in a statement: “We sympathise with those who have lost out as a result of wrongdoing in financial services, however we strongly reject the characterisation of the organisation.
“We have learned from historic issues and transformed as an organisation so we can deliver for consumers, the market and the wider economy.”
According to its own internal surveys, staff satisfaction has been on the up in recent years. Its two main measurements for 2024 – a Trust Index and measure of engagement – both rose by three per cent to 64 per cent and 68 per cent, respectively.
The FCA also appeared in front of MPs more than any other regulator during the last parliament, speaking 38 times in front of committees and offering written evidence 41 times.
City law firm CMS criticised the compilation of the report last night and said the MPs had proposed restructuring the regulator, changing its funding and stripping its immunity from legal “on the back of largely anecdotal evidence”.
“This blitzkrieg of solutions is unrealistic and impracticable,” said Simon Morris, a financial services partner at CMS.
“The target should be to make the FCA more efficient rather than hobble it with further restrictions. A more credible proposal in line with the new secondary competition objective would be for the FCA to instil culture of empowerment so its staff act openly and confidently with the firms they regulate.”