THE financial regulator’s controversial decision to ditch its review into Britain’s banking culture has been hailed by the City’s top ethics watchdog, who claims banker-bashing is overdone eight years after the financial crash.
The intervention by Simon Culhane, chief executive of the Chartered Institute of Securities & Investment (CISI), comes after the Financial Conduct Authority (FCA) sparked a furore at the New Year by revealing it had decided instead to address behavioural concerns with individual banks in private.
The decision prompted allegations that the regulator was leant on by the Treasury and the Bank of England to adopt a more softly-softly approach to banks after HSBC warned last year that it was considering moving its HQ away from Britain.
The FCA, the Bank of England and the Treasury have all denied the allegation. However, the shelving of the inquiry came only months after it was launched and weeks after the regulator’s former chief executive, Martin Wheatley, was ousted because he was perceived as being too tough on the banks.
Culhane said he had no idea whether there had been any outside influence on the decision, but praised the outcome as “sensible” as criticism of Britain’s banking industry had got out of hand.
“I think it will be a much more effective review of banking culture if it is done behind closed doors by the Banking Standards Board,” he said.
“A further public bashing would bring out defensiveness on the part of the industry. The banks really do get it. They know culture needs to change.
“But the sensible way to do it is to have detailed, mature discussions in private rather than just [regulators] playing to the public gallery again. What has happened with the FCA is a pretty good outcome, no doubt about it. The culture from the top of banks is already changing.”
The CISI’s views are likely to be welcomed by the FCA as, apart from its ethics brief, the body carries weight as the leading examinations body for hundreds of bankers in the Square Mile and the wider banking industry.
Last Wednesday, the Bank of England said in a formal statement: “The Bank of England had no influence or role in the Financial Conduct Authority’s decision to drop its thematic review on culture and it would be wrong to suggest otherwise.”
However, Andrew Tyrie MP, chairman of the Treasury select committee, published a letter on the same day to Tracey McDermott, the FCA’s acting chief executive, requesting the documents cited in a media article which claimed the decision to scrap the banking culture review was “overseen” by a senior BoE official.
McDermott is set to be grilled on the issue by MPs at a meeting of the select committee this Wednesday.
Culhane, who has previously called on internal banking “whistle-blowers” to alert managements about improper behaviour, said irrespective of any outside influence in the scrapping of the review, it was clear the authorities had decided to be less heavy-handed.
“The attitude from the top has changed. HSBC’s move [in placing its tax domicile under review] has reminded the government the banks provide 7.4 per cent of British GDP,” the CISI boss added.
“They realise the regulatory pendulum has swung too far. They are empathising a bit more with the banks, deciding it is not a bad idea to be more sensible and low-key.”
Cross-party MPs on the Treasury select committee who suggested at the New Year that they saw the hand of Chancellor George Osborne and the Treasury behind the FCA’s volte-face included Labour MP John Mann and Conservative MP Mark Garnier, the latter alluding to “Machiavellian” developments.
Among the spate of wrongdoing that led the FCA to initially launch its investigation into banking culture were the rigging of the rate at which banks lend to each other, manipulation of the forex market, mis-selling insurance and hedging products to small businesses, criminal money laundering, and sanctions-busting.