Friendlier, but watchdog will still have teeth
The new City regulator is going to adopt a more conciliatory tone but, its chief warns, that doesn't mean its predecessor's hard line will be entirely jettisoned
Friday 22 March 2013
Martin Wheatley showed the softer side of his personality as he outlined his vision for the UK's new regulatory framework.
Gone were the barnstorming threats that seem to have characterised his nine-and-a-bit months as chief executive-designate of the Financial Conduct Authority. Instead, the former London Stock Exchange executive appeared to be in a conciliatory mood ahead of the regulator's launch next month.
"You won't hear from us a 'be afraid' tone, that is not how we want to act," he said in what some might interpret as a dig at the tough language used by Sir Hector Sants, the former boss of the Financial Services Authority.
"We want to have a more predictable relationship with financial services firms – in this industry prevention is better than cure."
Mr Wheatley's FCA is part of the biggest regulatory shake-up the country has seen since the election of Tony Blair's Labour government in 1997.
The FSA, which was created by the then-Chancellor, Gordon Brown, is to be disbanded at the start of next month, having been widely criticised for its role in the lead-up to the financial crisis and the collapse of banks such as Northern Rock.
In its place will be the FCA, which will take on responsibility for policing the financial markets and the Prudential Regulatory Authority, which will make sure banks, building societies and insurers are financially stable.
Mr Wheatley, who was drafted in from a stint in Hong Kong to oversee the transition, admitted the relationship between financial regulators and the industry needs to improve after successive mis-selling scandals and the Libor fixing debacle. However, he insists the hardline approach adopted by the FSA in recent years will not be entirely jettisoned.
"The fact that the FSA focused on both conduct and prudential regulation made it difficult. From the moment Northern Rock collapsed, the conduct part did not get as much attention. We want to be a credible deterrent rather than just punishing companies.
"We will be on the front foot, though, when we see things we don't like. We have a broad tool kit and when we need to negotiate hard, we will negotiate hard. I don't think any of the banks expect us to be a pushover."
Mr Wheatley is certainly under pressure to win over a sceptical public, which has lost faith in regulation as the financial services industry staggers from one crisis to the next.
"The FCA is taking over from a body which failed consumers badly," Andrew Tyrie MP, the chairman of the Treasury Select Committee, said earlier this year. "If it simply picks up where the FCA left off, consumers will suffer again.
Mr Wheatley has already outlined his thoughts on many of the key issues facing the FCA, including the Libor scandal, on which he published a wide ranging report last year.
At the time, he called for a complete overhaul of the key interest rate-fixing system after he said it had been broken by banks.
Mr Wheatley's report made a number of major recommendations. These included introducing a new regulatory structure for Libor, with criminal sanctions for those who attempt to manipulate it; transferring oversight of Libor from the British Bankers' Association to a new body; and requiring banks to back up their submissions with evidence of relevant transactions.
Speaking today, he said he was also concerned that financial services firms could exploit consumers on the hunt for high-yielding returns.
He added that low interest rates and inflation were forcing savers to consider the kind of investments that could eventually hit their pockets.
"People should of course be allowed to invest their money as they wish. However, we must ensure that financial services providers make sure that the risks involved are clear."
For experts, the FCA's success will be measured by the relationship it builds with banks and other financial services providers in the UK rather than the fines it hands out.
Today's conciliatory tones went some way to promising this although concerns still remain.
Calum Burnett, the head of banking litigation at Allen & Overy, said: "There is a risk that the FCA will let the pendulum swing too far towards becoming enforcement-led.
"It will have a lot of powers, and its challenge will be to strike the right balance of using them credibly but still maintaining a constructive relationship with the banks it regulates."
For now, Mr Wheatley and his chairman John Griffith-Jones are fully aware that the court of public opinion is waiting to pass judgement.
"The FCA's in-tray is like a conveyor belt of issues coming through." Mr Griffith-Jones said. "What we are doing is going to be under great scrutiny."
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