In 2008, HBOS became part of the Lloyds Banking Group and needed a £20.5bn injection from UK taxpayers to prevent it from crashing. A recent HBOS report focusing on the regulator’s failings rather than the bank itself reveals fresh criticism of the regulator’s role in the banking crisis.
The regulator was then the Financial Services Authority (FSA). Due to its spectacular failings the Treasury replaced it with two new regulatory bodies: the Financial Conduct Authority (FCA) and the Prudential Regulatory Authority (PRA), with the latter overseen by the Bank of England.
The FCA has stated that it changed a number of its predecessor’s processes. However, the HBOS report has strengthened the case for a review of the FCA's enforcement function with a view to giving this power to a separate body.
The Treasury Select Committee believes that the separation would allow all three regulators – the FCA, PRA and the enforcement body – to “enjoy much greater clarity over their objectives”.
The FCA appears to be strongly against the introduction of a new separate body to oversee its enforcement. A spokesperson says: “it would potentially lessen our ability to be an effective regulator and impact our ability to protect consumers and ensure the integrity of the UK financial system.”
Scrutiny over the FCA’s remit, spending and outcomes continues to dominate and now additional questions are raised as to whether the regulator is overstretched due to its ever-increasing remit. Perhaps the FCA would in fact be better placed to be receptive to the Treasury’s suggestion to reduce some of its workload and agree to move its enforcement remit across to a newly created specialist body.
The regulator’s scope has grown steadily since inception in April 2013 yet it has had only marginal increases in staff numbers. Staff turnover and resourcing issues are still cited as issues in internal and external reports.
Increases to the FCA’s remit, for example, taking over the control of regulating claims management companies from the Claims Management Regulator will increase the strain on the FCA. Inevitably, the cost of additional resourcing required to absorb the new workload is likely to offset new revenues brought in. Additionally, budget concern has been exacerbated by the writing off of £3.2 m in “constructive loss” from software licenses the FCA purchased unnecessarily.
Knocking on the door of financial advice firms for additional cash injections is not an option for the FCA as the smaller businesses can’t afford it. To be truly effective, our regulator seriously needs to address its own business issues.