James Moore: Coutts in the dock... but once again the taxpayer will pay price for City folly

Outlook: For Coutts, the right sort of person was just about anyone with a big enough sack of cash

Just when you thought it was safe to go back into the City the Financial Services Authority shows that the departure of its chief enforcer, Margaret Cole, hasn't de-fanged it after all. No less an institution than Coutts was yesterday hit with an £8.75m penalty.

On the face of it there is every reason to indulge in a hefty dose of Schadenfreude here. Coutts is the Queen's banker, a shamelessly elitist institution that looks after top people's money. The sort of institution – former clients include Byron, Dickens and Chopin – that wouldn't look at you unless you were the right sort of person, right?

Well, not exactly. Because, as the FSA's lengthy report into Coutts' failings makes clear, the right sort of person was actually just about anyone with a big enough sack full of cash.

Coutts ran into trouble because, in the midst of an expansion drive, its bankers didn't bother to look too hard at where the riches of the wealthy fish they were trying to land actually came from, even when it classed them as "Politically Exposed Persons". These are people who are either part of, or closely linked to, regimes in parts of the world where the taint of corruption is never far away.

In one way Coutts' practices were actually rather praiseworthy. Its classification of a PoliticallyExposed Person went beyond the official one to include people associated with the UK regime. Which, given the revelations about cash for access and Tory donors, seems eminently sensible.

The trouble is, it isn't much good going further than the rules require in identifying high-risk customers if you then don't bother to check them out, as with nearly three-quarters of the Coutts cases the FSA looked at. Hence the blockbuster fine, the regulator's sixth biggest to date.

Given the scale of the failings, you might think questions would now be raised about Michael Morley, the former Barclays and Merrill Lynch executive who is supposed to be running Coutts for its owner, the state-controlled Royal Bank of Scotland. However, in these situations it always seems that when things go well it is down to the executives concerned, but when things go badly there's an excuse.

As for the fine, it will ultimately be paid by Royal Bank's shareholders, which means the taxpayer. It will go towards the FSA's supervisory budget, which has been fattened by £25m in fines against RBS over the last two years. That money will do a lot to help keep fees down for other City firms that are a bit better managed. The taxpayer is once again subsidising the City.

It isn't Schadenfreude we should be feeling. It's fury. Especially given that the executives running RBS keep getting handed huge bonuses despite scandals like this happening on their watch.


Equitable Life: Scandal that has never ended

Talking of the FSA, one of the living embodiments of its past failings issued its results yesterday. Equitable Life was once one of the great City scandals, a poster child for incompetent supervision and incompetent management that has rather faded from view given that the mistakes made over it pale by comparison to the gross negligence committed by so much of the financial, regulatory and political classes during the recent banking crisis.

The Equitable affair ended neither well nor tidily. In fact, it never really ended. What is left of the society continues its slow run-off, a run-off that is still being complicated by meddling from regulators.

The latest intervention comes from Europe, in the form of the Solvency II directive which has got the entire life insurance industry squealing (so perhaps it's good for something).

Equitable's holdings are now in about as low risk an investment portfolio as it is possible to have, and yet the society will still be forced to hold back two or three hundred million pounds more than previously as solvency cover. Which means that people who retire or transfer out now will be disadvantaged at the expense of those who do so later.

As a result, at the very end there will probably be a lot of money left to share out between a relatively small number of people who joined Equitable late. Among them will be those who signed up right at the end when the FSA, feeling the heat and in the midst of a panic, allowed Equitable to solicit new business even though it had hit the buffers. Thanks to Solvency II, some of them might not do as badly as had been feared.


HSBC may regret giving up its place in the sun

Bad luck for the top bods in HSBC's retail banking businesses. All those fact-finding and training visits to the sun-kissed holiday island of Mauritius look set to come to an end.

The bank is in talks to sell its retail operations there (the commercial banking bit will stay). The chief executive Stuart Gulliver has sensibly called time on HSBC's habit of pitching up everywhere for the sake of empire-building. With capital for banks scarce, only those businesses that tick the right boxes will be retained, and it seems the 11-strong branch network in Mauritius doesn't cut the mustard.

This might yet prove to be a shade short-sighted. The business might be small, it might not meet all of HSBC's criteria, but if Africa ever gets its act together (and parts of it are showing signs of doing so), the stable and relatively prosperous island, with an enviable position in the Indian Ocean, will have a big role to play.

HSBC might, at some point, have to change tack and head back.

While loafing in the sun under the guise of business will soon be off the menu for HSBC's retail stars, they should keep the sun-cream handy.

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