Where the City’s movers and shakers have their say. Today, Lucy McNulty, editor of Following the Rules podcast, takes the Notebook pen to talk watchdog politics, election grandstanding, and what the FCA could learn from the PRA
Playing politics with our regulators is bad news
Finance bosses may be quietly enjoying an increasingly public spat between government ministers and the City’s watchdog. They shouldn’t be.
For senior Treasury ministers to be criticising the Financial Conduct Authority’s (FCA) proposals and policies as openly as they have been in recent weeks is unusual. For the Chancellor himself to wade into the melee is highly so. After all, the watchdog is operationally independent of government. And it, alongside others, successfully pushed back on a proposal last year for the government to directly intervene in its decisions. But that has not stopped Chancellor Jeremy Hunt and City minister Bim Afolami from attempting to do just that.
At issue is the FCA’s new secondary legal objective to promote growth and competitiveness in the UK.
Hunt and Afolami have made clear that they believe the FCA is pursuing a regulatory agenda that is inconsistent with its new duty to spur growth. It’s in that context that the Chancellor berated the watchdog for proposing to “name and shame” companies under investigation when it’s in the public interest to do so while Afolami dismissed the FCA’s recent diversity drive and pushed back on “high regulatory barriers” generally.
Clearly, the ministers have this summer’s snap election in mind. Labour has adopted a pro-business agenda in preparation, pledging to pursue “nimbler” rulemaking amongst other commitments, piling the pressure on the ruling Conservatives to promote their business-friendliness.
To be sure, the FCA’s track record is not spotless nor are the proposals in question perfect. Some degree of parliamentary accountability is also right in any well-functioning democracy. But we risk setting a dangerous precedent here. If politicians are readily on hand to fight their corner, market participants may be encouraged to contest more and more of the FCA’s actions on the basis it threatens the UK’s growth prospects. That may make it more difficult for our watchdogs to fulfil their primary duty: promoting well-functioning financial markets so that consumers get a fair deal.
At some point, politicians will need to acknowledge that repeatedly and publicly undermining the City’s independent regulators could itself harm the UK’s future growth potential in promoting an image of the UK finance sector as one policed by watchdogs under the sway of short-term political pressure. And that’s not a good look for anyone.
What the FCA can learn from the PRA
The hoo-ha around the FCA’s proposal to “name and shame” companies under investigation has focused the attention of regulatory experts on a less-contentious enforcement approach recently adopted by its sister regulator.
The Prudential Regulation Authority has since January offered the roughly 1,500 financial institutions under its watch the option to pursue speedier – and reduced – settlements for non-criminal cases. Under this scheme, the PRA gives volunteering participants sign-off to investigate their own matters. Such probes should be completed within six months and details of them disclosed to the watchdog.
Undoubtedly, the scheme is particularly well-suited to the PRA which handles fewer, less varied and more technically-focused enforcement matters than the FCA which tackles a wide-ranging and meatier conduct-related caseload for the 50,000-odd firms under its oversight.
Nonetheless, one former regulator argues its adoption could enable the FCA to resolve its simpler casework faster, thereby potentially freeing up the organisation to focus on speeding up its sometimes years-long investigations into more complex matters.
So while it’s clearly not a panacea for the embattled watchdog, its potential to benefit the FCA’s enforcement team shouldn’t be ignored.
An election plea
Finance execs can be forgiven for already feeling somewhat jaded by the prospect of upcoming elections in both the UK and US.
So in the run up, a plea: government affairs guru Lisa Rabbe urged politicians to rein in “annoying” grandstanding.
“I don’t think it does politicians any good in terms of engendering trust and demonstrating that they are responsible stewards of the public office,” she told the Following the Rules podcast.
Legal and General Investment Management’s Sonja Laud, meanwhile, cautioned investors to avoid “getting too ingrained” in the “noise”.
What I am listening to:
The Voice of Insurance
My foray last month into the world of insurance in the consumer duty context had me seeking out insurance-related podcasts: The Voice of Insurance was by far the best one I came across. Hosted by industry veteran Mark Geoghegan, the series brings senior guests from the global insurance market on each week to provide informative and varied insights into the industry. It’s all broken down and explained in a digestible manner if, like me, you’re more of a market observer than participant. I particularly liked an episode on fixing the sector’s culture problem, which reveals the huge programme of education, self-examination and change around the subject of diversity and inclusion under way in the market.