Britain’s financial sector watchdog is “incompetent at best, dishonest at worst”, according to a damning report by MPs and Lords which called for a big shake-up.
An examination of the Financial Conduct Authority, which took almost three years and collected evidence from 175 fraud victims, whistleblowers and the regulator’s former staff, found “there are very significant shortcomings to the FCA”.
It was carried out by the all-party parliamentary group on investment fraud and fairer financial services, a group of 30 MPs and a dozen members of the House of Lords, after a series of financial scandals.
In those scandals, financial services firms were accused of mistreating consumers and small businesses, and the FCA has been blamed for “doing too little too late – or nothing” to prevent or punish alleged wrongdoing, Bob Blackman, who co-chairs the APPG, wrote in the 358-page report.
He said the group had heard “tragic tales of regulatory failure causing enormous financial and emotional distress”.
The report concluded: “The picture painted is not pretty. The FCA is seen as incompetent at best, dishonest at worst. Its actions are slow and inadequate, its leaders opaque and unaccountable.”
Blackman noted that “financial crime is a massive problem in the UK”, and it is therefore vital that the watchdog is delivering on its objective to provide consumer protection.
The findings pile further pressure on the UK’s main financial regulator, which has been criticised by several independent reviews. At the same time, the chancellor, Rachel Reeves, told the FCA last week that it should encourage more “sensible risk-taking” across the City.
Blackman said some of the most compelling evidence came from current and former employees of the regulator, who “depict its culture and leadership as profoundly defective” from the top down.
The report said that the culture “has got worse rather than better in recent years, in which 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”.
The report said the watchdog’s treatment of whistleblowers and their evidence was “alarming”, adding that the organisation failed to investigate properly and act on intelligence provided, and failed to protect – and in some cases, actively harmed – those who provided information.
One former employee said the culture became “increasingly toxic”, and that complaints about aggressive and “macho” behaviour by senior staff were brushed aside. Another said it was “the worst staff culture I have ever experienced in nearly 40 years. Top-down hierarchical management, Do as you’re told, don’t argue. An astonishing arrogance that FCA ‘insiders’ know more than any newcomers.”
A transformation programme carried out by the FCA under the chief executive, Nikhil Rathi, has not worked, those questioned by the APPG said with near unanimity.
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Rathi, who joined from the London Stock Exchange in 2020, invested heavily in technology and scrapped bonuses for senior staff after criticism of the FCA’s handling of the London Capital & Finance investment scandal. Other scandals include the mis-selling of pension advice to former British Steelworkers.
The report called for a supervisory council, similar to that created in Australia; changes to the way the FCA is funded; the removal of the FCA’s immunity from civil liability to consumers; and a new leadership team, if necessary.
If reforms do not work, the report suggested an Australia-style royal commission that would look into a more radical shake-up of financial regulation including handing some of the FCA’s powers to other organisations.
An FCA spokesperson said: “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.”
The FCA’s latest survey of 3,852 employees, with a 77% response rate, shows an improving picture, with the trust index score rising by 3% to 64% and the engagement score up by 3% to 68%. In the last financial year, the regulator charged 21 individuals with financial crime offences, the highest number of charges in a single year.