Brave Andrew Bailey steps up at City watchdog – but has he inherited a poisoned chalice?

Outlook

Andrew Bailey, center, the Chief Executive of the Prudential Regulation Authority (PRA), points to the exit next to the Chancellor of the Exchequer George Osborne and the Governor of the Bank of England Mervyn King during the opening of the PRA on April 2, 2013 in London, England. (Getty)

Andrew Bailey had better be at the top of George Osborne’s Christmas card list next year. By agreeing to become chief executive of the Financial Conduct Authority (FCA), he has solved a big problem for the Chancellor – a self-inflicted one too. As part of an attempt to mend fences with the City of London, Mr Osborne had elbowed aside the previous incumbent Martin Wheatley, and there have since been accusations that the FCA dropped an investigation into banking culture as a result of pressure from the Treasury.

That was denied (though was the FCA reading the smoke signals?) by the acting chief executive Tracey McDermott. However, she had added fuel to the fire by turning down a permanent appointment just days before it was due to be announced. Did the politics she might have felt she had to deal with play a role in that? It is an obvious question to ask.

So enter Mr Bailey, the dream ticket. He has even agreed, so I’m told, to do the job for slightly less money than Mr Wheatley was paid. Is he some sort of saint? Perhaps not at £600,000 plus, but you can see what I mean.

A current deputy Governor of the Bank of England, in which capacity he is also head of the City’s “other” regulator, the Prudential Regulation Authority, Mr Bailey is a known quantity at the FCA. That ought to help with the watchdog’s staff, who could be forgiven for feeling just a bit put-upon right now. Helpfully, he is also liked and respected by one of the FCA’s most important constituencies, the City’s banks – even if they don’t always like what he has done to them, especially when it comes to the capital requirements he has imposed on them. I’m told that he agreed to take on the job because he felt it was the right thing to do. That makes him a rather rare beast in British public life.

The only problem for the Chancellor might be that Mr Bailey will continue to do what he feels is the right thing – even if it is not politically expedient. He needs to be true to that ethos if the FCA is to retain its credibility in the face of the accusations of political interference.

Mr Osborne will have to accept that. Fortunately, by contrast to Mr Wheatley, Mr Bailey has the rare ability to be able impart hard truths and to give orders to important and powerful people – in a way that they find palatable. That skill may ultimately take him back to the Bank as Governor, if his old boss Mark Carney stays on a little longer so that the job is open when Mr Bailey’s five-year term at the FCA comes to an end.

But make no mistake – Mr Wheatley will first need to emerge from running the FCA relatively unscathed. Critics are already worried about how his appointment might affect the interests of consumers – and although it might be worth giving him time to get his feet under the desk, their concern does rather prove how tough his job will be. Even for someone of his ability.