UK Edition
Break up the financial watchdog over HBOS failures, MPs urge
The City watchdog should be broken in two so that one unit can properly hunt down bad bankers while the other supervises the wider state of the finance industry, an influential group of MPs has said.
MPs believe the sprawling nature of the old Financial Services Authority, and the Financial Conduct Authority which replaced it in 2013, meant bankers including former HBOS chief Andy Hornby have not been properly investigated.
Reports from regulators and Andrew Green QC last year found a series of problems led to the downfall of HBOS in 2007, including management error and weak supervision.
The Green report also found that enforcement regulators built a case to investigate Mr Hornby, but the investigation never happened as communications broke down and the FSA’s boss was not informed of the study.
“A separate body would bolster the perception of the enforcement function’s independence, and provide the regulators with greater clarity over their objective,” said Andrew Tyrie MP, chairman of the Treasury Select Committee.
“The case for separation merits serious re-examination. The Treasury should appoint an independent person to undertake a review.”
Mr Tyrie first proposed this in 2014 but the Treasury decided against splitting up the FCA – something the MPs want to be re-examined in light of the new evidence.
By having two separate regulators the Treasury Committee believes enforcement will always be given top priority by one regulator, rather than being lost in the wider remit of the FCA.
Meanwhile, the Treasury said it will look at the new report in detail in due course, and that its reforms to the system have already helped.
“Since 2010 we have dismantled the failed tripartite system and put in place a more focused system of judgement led supervision by the Financial Conduct Authority and Prudential Regulation Authority,” a spokesperson said.
“We’ve also hardwired responsibility and accountability into the financial system, with an emphasis on key decision makers at the top of banks. Our reforms directly address the regulatory failings identified in this report.”
The FCA said: “The FCA has a range of tools at its disposal of which enforcement is an essential one. We believe that if this regulatory tool is separated from the FCA it would potentially lessen our ability to be an effective regulator and impact our ability to protect consumers and ensure the integrity of the UK financial system."
MPs also said that regulators were wrong to name only senior officials in their reports on the performance of the FSA, and that more junior staff should not automatically have been given anonymity in the investigation into the bank’s collapse.
“The evidence in the reports shows that less senior employees can have a significant impact on regulatory strategy and outcomes. The policy of naming individuals should be flexible. In most cases it may be appropriate to offer anonymity to employees below the level of director,” the MPs said.
“There should, however, be scope for exceptions. In future, those leading a review should have the freedom to determine if the public interest would best be served by naming particular employees.”