Guns blazing: City sheriff rounds up the cowboys

Watchdog head Martin Wheatley says banking culture reforms will take time

Can you name an area of financial services that hasn't been found wanting, where consumers haven't been sold an overly complicated product for an inflated price, or traders haven't colluded so they can boost profits?

It is the question that Martin Wheatley, the watchdog appointed a year ago to police everything from insurance policies to foreign exchange trading, takes longest to answer in our meeting.

"An awful lot of the problem was that products were being supplied that weren't necessarily ripping off the consumer but they were being under-priced to the extent that they weren't making enough profit for the bank," he says, eventually.

Sliding the milk jug across the table until it clinks against his cup of tea, Mr Wheatley adds: "So the bank would say: OK, you want that product, you have to take that one with it. That's what payment protection was."

In 12 months, the Financial Conduct Authority, where Mr Wheatley is chief executive, has made its presence felt, weighing into annuities, mobile-phone insurance – "in some places, practices were abhorrent" – interest-only mortgages, Libor interest-rate rigging and payday lending. "It is a long food chain, with reasonable behaviour at one end and appalling at the other."

The dubious bundling of products was alive and well in the small-business loans market too, where banks have so far paid out £482m in redress for mis-selling interest rate swaps, which were designed to hedge against rising loan repayments but were also loaded with hidden break fees.

"Instead of just selling them a fixed-rate loan which people understand, they sold them complex swaps, which are then costing them a lot of money to get out of."

Has the new City sheriff – a former deputy chief executive of the London Stock Exchange who cut his regulatory teeth in Hong Kong – rounded up all the cowboys yet? Far from it. It would be nice to think he was still dealing with problems from 2007 and 2008, when banking was fast and loose before the crisis struck, but many of them are far more recent than that.

Mr Wheatley welcomes the touchy-feely culture changes unveiled at the top of almost every major bank, but will welcome it even more when it has percolated down from the boardroom to the rank and file.

"In fairness to major firms, everyone talks about a new, consumer-centric way of doing business with ethics being at its heart, but actually these organisations employ 100,000 people; and the people who have been used to significant rewards for bending the rules, breaking the rules, or committing acts that don't pass muster, try to carry on doing that, frankly.

"That is why a lot of what we try to do is not just looking at symptoms of what went wrong but also the root causes of what created that. Most cases are a combination of poorly designed incentive structures and a failure to manage conflicts of interest.

"Culture change in any organisation is hard work. You can't sheep-dip people on the trading floor and believe that makes the change. You've got to live it, breathe it, deliver it every day."

What may drive change is when regulators have some examples to hold up. Mr Wheatley expects successful criminal prosecutions in the area of Libor interest-rate rigging, and that means there will probably be prison terms for those caught in the net of the brewing forex rigging scandal too. Manipulation of that market, worth $5.3trn (£3.2trn) daily, is a far bigger deal for London, which houses about 40 per cent of all trades. So far 20 traders have been dismissed or suspended, as well as one of the Bank of England's staff. There are more dark corners to probe, Mr Wheatley warns.

"The interesting thing about Libor is the freedom of language in internet chatrooms or on recorded lines which suggests a complete disregard for any ethical basis for what was going on, but also an almost complete acceptance that what was going on was normal," he says. "In lots of ways that was the most shocking thing."

The FCA has styled itself as a consumer champion. It is a successor to the Financial Services Authority, which was itself a casualty of the banking crisis when half of its oversight role was returned to the Bank of England, in a shake-up designed to tighten up on wrongdoing.

But one problem with a crackdown is that players fail to abide by new rules if they don't think they can make enough profit. Mr Wheatley acknowledges that gaps have opened up as incentive-driven business models are exposed.

Lloyds was the most recent high street name to be lashed. The Black Horse bank landed a £28m fine for dubious sales tactics where branch staff were offered "grand in your hand" bonuses to push all sorts of savings and investments products on customers.

Rather than reform, banks are deserting that section of the market, with HSBC and Santander noticeably scaling back from offering in-branch investment advice.

The question is whether the financial services industry – and, to some extent, the City of London – can bounce back in the trust stakes as the FCA runs amok.

Mr Wheatley's view is that "it's a very difficult balance. By blowing something open you obviously take a reputational hit that that had been going on, but I hope you get some reputational benefit that by dealing with it, the future is not going to look like that."

Voices
Stephanie first after her public appearance as a woman at Rad Fest 2014
voices

Arts and Entertainment
Banksy's 'The Girl with the Pierced Eardrum' in Bristol
art'Girl with the Pierced Eardrum' followed hoax reports artist had been arrested and unveiled
Voices
Oscar Pistorius is led out of court in Pretoria. Pistorius received a five-year prison sentence for culpable homicide by judge Thokozile Masipais for the killing of his girlfriend Reeva Steenkamp
voicesThokozile Masipa simply had no choice but to jail the athlete
Life and Style
tech

Board creates magnetic field to achieve lift

PROMOTED VIDEO
News
Russell Brand at an anti-austerity march in June
peopleActor and comedian says 'there's no point doing it if you're not'
Arts and Entertainment
Sister Cristina Scuccia sings 'Like a Virgin' in Venice
music

Like Madonna, Sister Cristina Scuccia's video is also set in Venice

News
i100
Arts and Entertainment
James Blunt's debut album Back to Bedlam shot him to fame in 2004
music

Singer says the track was 'force-fed down people's throats'

Life and Style
The Tinder app has around 10 million users worldwide

techThe original free dating app will remain the same, developers say

News
news

Endangered species spotted in a creek in the Qinling mountains

News
ebooksAn unforgettable anthology of contemporary reportage
News
Bryan Cranston as Walter White, in the acclaimed series 'Breaking Bad'
news
News
peopleJust weeks after he created dress for Alamuddin-Clooney wedding
Life and Style
A street vendor in Mexico City sells Dorilocos, which are topped with carrot, jimaca, cucumber, peanuts, pork rinds, spices and hot sauce
food + drink

Trend which requires crisps, a fork and a strong stomach is sweeping Mexico's streets

Life and Style
health

Some experiencing postnatal depression don't realise there is a problem. What can be done?

Arts and Entertainment
Gotham is coming to UK shores this autumn
tvGotham, episode 2, review
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Senior Pensions Administrator

£23000 - £26000 Per Annum: Clearwater People Solutions Ltd: Our client is curr...

Corporate Actions Administrator / Operations Administrator

£25 - 30k: Guru Careers: A Corporate Actions Administrator / Operations Admini...

Customer Service Executive / Inbound Customer Service Agent

£18 - 23k + Benefits: Guru Careers: We are seeking a Customer Service Executiv...

ASP.NET Web Developer / .NET Developer

£60 - 65k + Benefits: Guru Careers: We are seeking a ASP.NET Web Developer / ....

Day In a Page

Two super-sized ships have cruised into British waters, but how big can these behemoths get?

Super-sized ships: How big can they get?

Two of the largest vessels in the world cruised into UK waters last week
British doctors on brink of 'cure' for paralysis with spinal cord treatment

British doctors on brink of cure for paralysis

Sufferers can now be offered the possibility of cure thanks to a revolutionary implant of regenerative cells
Let's talk about loss

We need to talk about loss

Secrecy and silence surround stillbirth
Will there be an all-female mission to Mars?

Will there be an all-female mission to Mars?

Women may be better suited to space travel than men are
Oscar Pistorius sentencing: The athlete's wealth and notoriety have provoked a long overdue debate on South African prisons

'They poured water on, then electrified me...'

If Oscar Pistorius is sent to jail, his experience will not be that of other inmates
James Wharton: The former Guard now fighting discrimination against gay soldiers

The former Guard now fighting discrimination against gay soldiers

Life after the Army has brought new battles for the LGBT activist James Wharton
Ebola in the US: Panic over the virus threatens to infect President Obama's midterms

Panic over Ebola threatens to infect the midterms

Just one person has died, yet November's elections may be affected by what Republicans call 'Obama's Katrina', says Rupert Cornwell
Premier League coaches join the RSC to swap the tricks of their trades

Darling, you were fabulous! But offside...

Premier League coaches are joining the RSC to learn acting skills, and in turn they will teach its actors to play football. Nick Clark finds out why
How to dress with authority: Kirsty Wark and Camila Batmanghelidjh discuss the changing role of fashion in women's workwear

How to dress with authority

Kirsty Wark and Camila Batmanghelidjh discuss the changing role of fashion in women's workwear
New book on Joy Division's Ian Curtis sheds new light on the life of the late singer

New book on Ian Curtis sheds fresh light on the life of the late singer

'Joy Division were making art... Ian was for real' says author Jon Savage
Sean Harris: A rare interview with British acting's secret weapon

Sean Harris: A rare interview with British acting's secret weapon

The Bafta-winner talks Hollywood, being branded a psycho, and how Barbra Streisand is his true inspiration
Tim Minchin, interview: The musician, comedian and world's favourite ginger is on scorching form

Tim Minchin interview

For a no-holds-barred comedian who is scathing about woolly thinking and oppressive religiosity, he is surprisingly gentle in person
Boris Johnson's boozing won't win the puritan vote

Boris's boozing won't win the puritan vote

Many of us Brits still disapprove of conspicuous consumption – it's the way we were raised, says DJ Taylor
Ash frontman Tim Wheeler reveals how he came to terms with his father's dementia

Tim Wheeler: Alzheimer's, memories and my dad

Wheeler's dad suffered from Alzheimer's for three years. When he died, there was only one way the Ash frontman knew how to respond: with a heartfelt solo album