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FCA chief pledges to enforce ‘credible’ deterrence

Martin Wheatley will aim to prevent the bad behaviour by financial firms that has previously led to anger and protests. Picture: Getty

Martin Wheatley will aim to prevent the bad behaviour by financial firms that has previously led to anger and protests. Picture: Getty

  • by MARTIN FLANAGAN
 

WHEN Martin Wheatley was told by journalists at a pre-launch briefing of one of ­Britain’s new regulators last week that the bankers don’t like him, his response was ­disarming.

“I’m sorry to hear that. I like them,” the chief executive of the Financial Conduct Authority (FCA), responded, with a knowing smile.

It’s fair to say the banks don’t know how to take him ahead of tomorrow’s arrival of the FCA. It, along with the Prudential Regulation Authority (PRA), will take on the work of the Financial Services Authority, which has been abolished.

This so-called “twin peaks” regulatory system has been introduced in response to the failings of the old tripartite system – the FSA, Bank of England and Treasury – during the financial crisis.

As the regulator responsible for financial markets and investor protection, Wheatley’s organisation will be at the cutting edge of consumer issues, monitoring the mis-selling of financial products and market abuse which have dogged the sector for years.

The PRA will focus on the financial strength of Britain’s banks, building societies, insurers and credit unions. In promoting safety and soundness, it will consider the harm that firms can cause to the stability of the UK financial system. Unlike the PRA, the FCA will be independent of the Bank of England, but to ­complicate matters it will operate the prudential regulation of those financial services firms not supervised by the PRA, such as asset managers and financial ­advisers.

The banks’ anxiety over the new regime was fuelled when Wheatley, then chief executive-designate of the FCA, said in a speech last year that, in the wake of the outrage over mis-selling, his policy would be “shoot first and ask questions later”.

He is more emollient now, perhaps not wanting to burn his bridges with the financial industry prematurely, and the emotive quote has become softened to “we are recalibrating the expectation of what is acceptable”. Having said that, Wheatley doesn’t want to be seen as a soft touch. During last week’s briefing, he returned to the subject of the need for “credible deterrence” in a consumer-led regulator.

“I won’t want to go out saying ‘Be afraid’, but I want the FCA to have a strong enforcement function,” he said.

It will be a difficult line to walk, as the FSA was criticised for the relative lightness of its fines in areas such as the ­Libor scandal, compared with its American counterparts.

Wheatley is under no illusions here, though. He says that with the billions of pounds of profits banks often make, the FCA could beef up its fines by a factor of five, or even ten, without it having much of a financial effect on anyone but the relevant bank’s shareholders. He reckons it is the reputational damage that a fined and disciplined organisation or individual receives that will go furthest to changing the worst boardroom practices.

As well as keeping an eagle eye on financial markets and financial products, the FCA has also been given the remit of promoting competition in the sector.

Wheatley says: “The most significant new power we are being given is competition power. I don’t think any other major regulator has that [as part of its remit].”

However, he doesn’t feel the new regulator will be in danger of spreading itself too thinly – a charge levied sometimes at the FSA in the wake of bombshells such as the collapse of Northern Rock. “It’s a question of finding the right balance,” Wheatley says.

He joined the FSA as managing director of its consumer and markets business unit in 2011, so he is not coming to the new challenges cold.

And he certainly knows all about financial markets. Before joining the FSA he served a five‑year term as chief executive of Hong Kong’s Securities and Futures Commission. Before that he was deputy chief executive of the London Stock Exchange Group and sat on the FSA’s Listing Authority Advisory Committee.

In terms of the FCA’s operating style, Wheatley says it will move away from being so “firm-centric” in trying to anticipate problems in financial services and also make more use of market “intelligence” such as consumer organisations and blogs.

“The balance will change. We will be much more intrusive,” he adds. “We will be much more questioning of business leaders about their strategies. We will spend more of our time seeing not just what the recent record is, but where they see the business going.”

He adds: “I want to be able to tell firms that you are on the margins [of acceptable behaviour]. Perhaps you would like to think carefully about whether you want to be on the margins.”

Twitter: @martin flanagan8

 

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