The Financial Conduct Authority may be sleepwalking into the next financial scandal after spending too long “looking in on itself”, a former senior official has warned.
Speaking on the Following the Rules podcast, ex-regulator Gavin Stewart, former chief risk officer at the FCA and a veteran of its previous incarnation, the Financial Services Authority (FSA), warned that a period of change at the watchdog may have turned its attention inwards and away from the companies it is policing.
“My impression when [structural change] happens, having been through the creation of the FSA and then the splitting up of it into the Prudential Regulation Authority and FCA, is that everyone inevitably ends up focusing in on their own job, their own future, where they’re going to sit, will they have a job – and you potentially miss stuff,” Stewart warned.
“So we won’t see it yet, but there’s a possibility that stuff will have gone unnoticed because the FCA spent six, nine months a year, looking in on itself more than it should, rather than out on the world and the external job it’s there for.”
Many of the 60,000 firms that the FCA regulates “get very little direct scrutiny” and officials need “the time to do proper analysis of all that information they have”, Stewart added.
“If they’re being pulled in different directions internally, because they’ve got lots of internal restructuring meetings, then that’s an issue,” he said.
The comments point to a turbulent few years for the regulator in which chief Nikhil Rathi has merged its supervisory and policy and competition teams and shifted the focus of the watchdog to become more data-led and “assertive”.
Nikhil Rathi, chief executive of the Financial Conduct Authority (FCA)
Ministers in the previous government also overhauled its mandate to include a secondary objective to promote the competitiveness of the City and the growth of the economy.
However, the FCA defended its internal overhaul yesterday and said the shift was designed to make the regulator more effective in its oversight of the City.
“The work we have been carrying out internally, including bringing together our supervision, policy and competition functions, is designed to help us achieve and enhance our objectives,” an FCA spokesperson told City A.M.
Stewart also mounted a defence of the body after barbs from the previous government over the way it has embraced its new secondary objective, saying “criticism comes with the territory”.
“The reason for having regulation is because you have an area of the economy that is being exploited,” he said. “Your purpose is not primarily to make everyone happy.”