Margaret Cole on greed and bad bosses

Margaret Cole quit as the City watchdog's enforcer. Now she tells Margareta Pagano who is to blame for the financial crisis

If Margaret Cole is sore about being overlooked for the top job at the Financial Conduct Authority, the City's new watchdog, she's doing a good job at disguising it: "It was time for a change. The seven-year itch," she says, with the biggestof smiles. And there are no teethshowing.

In fact, Ms Cole looks like the cat that got the cream. We meet in a tiny room at the Financial Services Authority's offices at Canary Wharf and she's looking tanned and fit after a holiday in Thailand. She leaves the FSA as its chief enforcer – the City's M – on Monday and has just landed herself a plum job as legal counsel and board member at PwC, one of the big four accountancy firms. After taking a pay cut to join the FSA, she will rocket back into the mega- wealthy bracket. Partners at PwC generally earn £700,000-plus.

Life can't be bad. She now has six months of gardening leave and plans to spend time riding her horses, some show-jumping and eventing, cycling with friends in Puglia, as well as some actual gardening at her Northamptonshire home. There will be visits to the Olympic riding events in Greenwich Park; her husband, Graeme Cooke, is veterinary director of the Lausanne-based International Equestrian Federation, and is charge of the horses. Another enforcer, he's also a lieutenant colonel doing all sorts of covert stuff in the Territorial Army, and her own James Bond figure.

Why would she go back to City life? Ms Cole laughs: "I'm sure I will be more than ready after so many holidays but I can imagine it might be difficult too. But working with PwC will be fascinating, a new challenge, as I will be looking at regulatory work and litigation from a different point of view. I like to re-invent myself and it will be a case of throwing myself in at the deep end."

She has dived into new waters before; moving from commercial practice with the US law firm White & Case, to criminal work at the FSA. But she knew exactly what had to be done: "I knew that our biggest weapon was to show the City that people could be sent to prison for these crimes. I've also been clear that we had to have convictions, and for that you have to have water-tight cases – there's no point chasing after cases where you can't build enough evidence and for that you have got to move in early. You have to have courage and commitment."

It's this tough love that the City has come to expect from Ms Cole. Even the most cynical of the Square Mile's professionals admit she has given the watchdog proper incisors. One former banker said it used to be that if FSA investigators, who visited the bank for their regular check-ups, showed any flair, they would snap them up. "But if they weren't up to scratch, we would run rings around them," he said. That's not the case now.

Since the 50-year-old took over seven years ago, the rate of fines secured by the FSA has risen threefold. In her first year, civil fines were £17m and by 2011 rose to £66m, nearly covering the enforcer's £67m budget. Ms Cole is proud of the record, and in particular her crackdown on insider dealing, that most invidious of City practices which many still see as a "victimless" crime. She disagrees profoundly, and has been lobbying for sentencing to be increased to 10 years for insider dealing. There have been 11 convictions during her reign, including the 21-month prison sentence for the former Cazenove partner Malcolm Calvert for insider dealing. Three big criminal cases brought by the FSA are taking place at Southwark crown court and are likely to last for months.

But turning the FSA's culture to one of prosecution was painful too, she says. About a third of the FSA's enforcement team were let go and she hired former policemen, investigators and prosecutors to improve the talent.

On her office wall she has a dial on a board with colours from red to amber and green – red to illustrate 100 per cent settlements and green for none. She aimed for the amber region, between 60 and 85 per cent of cases being settled. Any more and they were being too soft. As she puts it, settling with clients doesn't create the right atmosphere or an effective deterrent to crime, as the Serious Fraud Office has shown.

That's perhaps why Ms Cole understands the public's frustration over the lack of accountability of those running banks that collapsed. All the ex-directors of RBS, apart from Johnny Cameron, were cleared by the FSA, although civil action is still being considered by the government. She is hopeful there will be a tougher approach taken towards directors and their qualifications in the future. On HBOS she says "wait and see", as the FSA's work is ongoing.

So what, in her book, were the real causes of the crash? Ms Cole hesitates for a second, raising her finely arched eyebrows at the PR man seated beside her, as though to ask, can I talk freely now? He gives the nod, and she's off: "Greed, excessive pay and the pressure for higher returns from investors; these factors combined to create a vicious spiral leading to the crash. The high pay packages which were paid to the bankers involved were tied to the big transactions they carried out [that were] so fundamental to many of the problems."

And the greed spiralled out of control because of bad leadership, she adds. Ms Cole experienced some of this poor leadership during the FSA's investigation into the mis-selling of payment protection insurance, which has forced the banks to cough up billions in compensation. "Business leaders set the tone of an organisation. When we were questioning bank executives over the PPI mis-selling and asking them why they sold these products, many replied: 'Well, everybody else was doing it, so why shouldn't we?'"

Ms Cole lifts those eyebrows again, and there's no doubt what she thinks of such pathetic excuses. But what about the regulators, such as the FSA? Weren't they also to blame for creating the so-called "light-touch" regulatory framework? She agrees that prior to the crash the regulators had a false sense of security. While she doesn't excuse it, she suggests the political and prudential framework, aided by the lax Basle agreements on liquidity and capital, allowed regulators and conduct to drift, not just here in the UK. "Was there a failure of political leadership too? I'm not sure, but just as with leadership of the banks, politicians are part of that collective responsibility."

Since the break-up of the FSA into "twin peaks", Ms Cole has been the first managing director of the conduct business unit that will become the new Financial Conduct Authority, headed by the former Hong Kong regulator Martin Wheatley. It's the job that many say should have rightfully gone to her, but there was immense political pressure for a new broom. It's not going to be an easy ride for Mr Wheatley either because of that pressure.

"The team will need to be bold and resolute as the new regulations will bring even bigger cultural change," Ms Cole says. "Top priority for the FCA will be to ensure competition in banking. That's critical. If the FCA is to clean up the markets for consumers, then banning products is not enough. Behaviour has to change."

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