The UK Financial Conduct Authority (FCA) has been panned as ‘incompetent’ and ‘defective’ in a damning report tabled by a cross-parliament committee last week that calls for sweeping changes in the regulator.
After sifting through evidence from 174 submissions, the All-Party Parliamentary Group (APPG) for Investment Fraud & Fairer Financial Services found the FCA was “widely seen as incompetent”.
Conservative Party MP and APPG chair, Bob Blackman, says in the report that “the testimony received suggests that there are very significant shortcomings to the FCA”.
The FCA “comes across as an opaque and unaccountable organisation, slow to act and even slower to admit it has got things wrong and to change”, Blackman says.
“… Perhaps some of the most compelling evidence comes from current and former employees of the regulator itself, who depict its culture and leadership as profoundly defective.”
According to the report, the “defective culture” has steadily worsened in recent years despite an internal “transformation programme” designed to shake-up the organisation.
The APPG investigation found within the FCA “errors and inaction are too common, where there is little accountability, and those who challenge a top-down ‘official line’ on any given issue are bullied and discriminated against, or even managed out”.
Furthermore, the report says the regulator routinely failed to investigate whistleblower evidence, lacked transparency and accountability while also questioning the FCA’s “integrity”.
“A significant number of respondents believe the FCA sometimes acts in bad faith,” the APPG says. “These allegations can be divided into two groups: some (especially SME stakeholders who have been victims of alleged misconduct by banks) claim that the regulator is captured, meaning culturally and economically aligned with banks and other large authorised firms and hence disinclined to act against their interests; others assert that the organisation displays a lack of honesty and transparency when called to account for its own decisions, actions and inactions.”
Among a raft of reforms, the parliamentary group calls for a leadership change at the FCA as well as better oversight, a new funding model, splitting off functions to other regulators, a “statutory, civilly actionable” duty of care and removing the regulator’s immunity from civil liability legal actions.
“We recognise that there is not currently a widespread appetite for such radical measures but suggest that if measures to reform the FCA are not taken or do not work, there may be a case for holding a Royal Commission along the lines of what took place in Australia,” the report says. “Such a vehicle might be the most appropriate forum for considering whether there is a need for generational changes to financial regulation in which proposals such as that outlined above are given serious consideration.”
In a statement, the FCA, which released its five-year plan last week, hit back at the APPG findings.
“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,” a spokesperson said. “We have learned from historic issues and transformed as an organisation so we can deliver for consumers, the market and the wider economy.”
The Australian Securities and Investments Commission (ASIC) has also faced some harsh political critiques in recent years, resulting in new legislation in 2021 to establish a regular review process.
In the inaugural ‘Financial Regulator Assessment Authority Effectiveness and Capability Review’ published in 2022, ASIC was found “generally effective and capable in the areas review”.
But the formal review also included several recommendations that, if adopted, would “require a cultural shift in the way that ASIC approaches its work and engages with its regulated population and broader stakeholders”.
While the NZ Financial Markets Authority has largely escaped such political broadsides, the local regulator did miss a few key performance targets over its latest reporting year.
New FMA chair, Craig Stobo, notes in the report that the performance misses are concerning but also highlight “an opportunity for improvement, and will be a focus for the Board over the coming months”.
The NZ regulator has taken on several new responsibilities over the last few years – most recently consumer credit oversight – while losing its anti-money laundering duties last month.