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City watchdog chiefs to face MPs over dropped banking inquiry

Published 07/01/2016

Chiefs of the City watchdog are to be called before the Commons Treasury Committee
Chiefs of the City watchdog are to be called before the Commons Treasury Committee

Top brass at City watchdog the Financial Conduct Authority are being summoned before a committee of MPs to explain why an inquiry into banking culture has been dropped.

The chairman of the influential House of Commons Treasury Committee, Andrew Tyrie, said recent decisions by the FCA were giving the impression of a "weakening of resolve".

Shadow chancellor John McDonnell said he was "deeply worried" that the FCA had been influenced by Chancellor George Osborne to take a softer approach to the banks and was now "almost rudderless".

The FCA was created in 2013 to replace the Financial Services Authority in the wake of the financial crash, with a remit to regulate conduct related to the marketing of financial products.

It has been without a permanent chief executive since Martin Wheatley - widely seen as tough on the banks - left last summer after learning that Mr Osborne would not renew his contract.

As well as dropping the inquiry into banking culture, the FCA has recently decided to take no action against HSBC over allegations of Swiss tax avoidance and has shelved a report into incentive structures for financial product sales staff.

Mr Tyrie told BBC Radio 4's Today programme: "Each in itself isn't necessarily crucial, but cumulatively they do give the appearance of a weakening of resolve. Certainly the FCA's decision to drop its review into banking culture looks odd. After all, it was in their business plan."

Acting FCA chief executive Tracey McDermott and chairman John Griffith-Jones will be called before the committee so MPs can "make sure that they are getting on with implementing the new challenges they have been given by Parliament", said Mr Tyrie.

"They have got a tough job and we want to make sure that they are doing it properly on behalf of millions of taxpayers and consumers.

"I'm concerned that, as we move further and further away from the crash and those awful events, time dims the memory, and therefore it is absolutely essential that we keep in mind all the time that we are trying to get this right.

"It's our job to put in place the best protection we can to make sure that when the next financial crash does come - and we can be sure eventually there will be one - that we are as prepared as we possibly can be for it."

Mr McDonnell told Today: "We now have a body that is almost rudderless. In addition to that, what we have seen is them dropping their inquiry into the culture of banking.

"I believe that is influenced by George Osborne. I have called on him to intervene to try to get that back on track and that hasn't happened.

"Not only do we have a vacuum, but that vacuum is being filled by a politician, as far as I can see, and we are going backwards rather than forwards.

"We are reverting to type and my worry is that is undermining the whole lessons that we learnt as a result of the economic crisis. I am deeply worried about the whole situation."

Mr Osborne insisted that Britain has an "exemplary" system of financial services regulation and denied he was too close to the bankers.

The Chancellor told the BBC Radio 4 Today programme: "There has been a fundamental change in the way we regulate banks. We are splitting retail banks from investment banks in their operations.

"We have introduced new criminal offences, responding quite rightly to the public anger that no-one was jailed for what went on seven or eight years ago in our banking system.

"We've made sure that when people receive these big bonuses, that money can be taken away from them if things go wrong, rather than the taxpayer picking up the bill."

Challenged over whether his regular meetings with leading bankers meant he was personally "too cosy" with the industry, Mr Osborne said: "It would be a bit odd if I, as Chancellor of the Exchequer, didn't meet the people running institutions like the Royal Bank of Scotland or Lloyds...

"My job is to listen to the arguments put to me and then to make my own judgment, and for the Government to make a judgment, on how we make a more secure economy and a more secure banking system.

"Most people, looking at the UK, would say at the moment we have some of the toughest regulation, the most effective regulation, that we have some of the best people - individuals like (Bank of England governor) Mark Carney or (deputy governor) Andrew Bailey, who regulates banks - in making these judgments.

"We've got a pretty exemplary system of regulation, and that's appropriate because we are the world's global financial centre and that brings enormous numbers of jobs to all parts of the UK."

Mr Osborne said the dropping of the FCA inquiry into banking culture was "a completely independent decision that I had no fore-knowledge of".

And he suggested that the work the inquiry was due to undertake had already been completed by the Parliamentary Commission on Banking Standards, which reported in 2013

Mr Osborne said Mr Wheatley did "a good job" setting up the FCA, but said the regulator "needs new leadership ... to take it into its more mature phase".

Ms McDermott was "very effective" as interim leader but does not want the job full-time, he added.

"We want successful financial services that are well-regulated and face tough scrutiny so that, yes, they are successful but when they fail you and I and the people listening to this programme don't have to pick up the tab," said Mr Osborne.

"That's what Britain needs and I think we've got the balance right because of the changes we have made in recent years."

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