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."

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

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

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Customer Service Administrator

£13000 - £15000 per annum: Recruitment Genius: Are you passionate about custom...

Recruitment Genius: Dialler Administrator

£22000 - £25000 per annum: Recruitment Genius: Main purpose: Under the directi...

Ashdown Group: Contracts Manager - City of London

£35000 - £37000 per annum + benefits : Ashdown Group: Contracts Manager - City...

Guru Careers: Tax Manager / Accountant

£35 - £50k DOE: Guru Careers: A Tax Manager / Accountant (ACA / CA / CTA) is n...

Day In a Page

Blairites be warned, this could be the moment Labour turns into Syriza

Andrew Grice: Inside Westminster

Blairites be warned, this could be the moment Labour turns into Syriza
HMS Victory: The mystery of Britain's worst naval disaster is finally solved - 271 years later

The mystery of Britain's worst naval disaster is finally solved - 271 years later

Exclusive: David Keys reveals the research that finally explains why HMS Victory went down with the loss of 1,100 lives
Survivors of the Nagasaki atomic bomb attack: Japan must not abandon its post-war pacifism

'I saw people so injured you couldn't tell if they were dead or alive'

Nagasaki survivors on why Japan must not abandon its post-war pacifism
Jon Stewart: The voice of Democrats who felt Obama had failed to deliver on his 'Yes We Can' slogan, and the voter he tried hardest to keep onside

The voter Obama tried hardest to keep onside

Outgoing The Daily Show host, Jon Stewart, became the voice of Democrats who felt the President had failed to deliver on his ‘Yes We Can’ slogan. Tim Walker charts the ups and downs of their 10-year relationship on screen
Secrets of comedy couples: What's it like when both you and your partner are stand-ups?

Secrets of comedy couples

What's it like when both you and your partner are stand-ups?
Satya Nadella: As Windows 10 is launched can he return Microsoft to its former glory?

Satya Nadella: The man to clean up for Windows?

While Microsoft's founders spend their billions, the once-invincible tech company's new boss is trying to save it
The best swimwear for men: From trunks to shorts, make a splash this summer

The best swimwear for men

From trunks to shorts, make a splash this summer
Mark Hix recipes: Our chef tries his hand at a spot of summer foraging

Mark Hix goes summer foraging

 A dinner party doesn't have to mean a trip to the supermarket
Ashes 2015: With an audacious flourish, home hero Ian Bell ends all debate

With an audacious flourish, the home hero ends all debate

Ian Bell advances to Trent Bridge next week almost as undroppable as Alastair Cook and Joe Root, a cornerstone of England's new thinking, says Kevin Garside
Aaron Ramsey interview: Wales midfielder determined to be centre of attention for Arsenal this season

Aaron Ramsey interview

Wales midfielder determined to be centre of attention for Arsenal this season
Community Shield: Arsene Wenger needs to strike first blow in rivalry with Jose Mourinho

Community Shield gives Wenger chance to strike first blow in rivalry with Mourinho

As long as the Arsenal manager's run of games without a win over his Chelsea counterpart continues it will continue to dominate the narrative around the two men
The unlikely rise of AFC Bournemouth - and what it says about English life

Unlikely rise of AFC Bournemouth

Bournemouth’s elevation to football’s top tier is one of the most improbable of recent times. But it’s illustrative of deeper and wider changes in English life
A Very British Coup, part two: New novel in pipeline as Jeremy Corbyn's rise inspires sequel

A Very British Coup, part two

New novel in pipeline as Jeremy Corbyn's rise inspires sequel
Philae lander data show comets could have brought 'building blocks of life' to Earth

Philae lander data show comets could have brought 'building blocks of life' to Earth

Icy dust layer holds organic compounds similar to those found in living organisms