WHY HE’S NOT FIT TO BE THE CITY’S ETHICAL WATCHDOG

THE role of the Financial Conduct Authority is to ensure that the financial services industry not only abides by the law, but above all, does what is right. This is the only way in which confidence in the City can be rebuilt.

What, then, are we to make of the fact that Charles Randell, the incoming chairman of the FCA, invested in the notorious Ingenious Film Partners 2 tax scheme, and had to repay HM Revenue and Customs £114,000 plus interest when deductions from the scheme were declared improper by the courts? Everybody makes mistakes, and you can perhaps excuse footballers and entertainers such as Wayne Rooney, David Beckham and Bob Geldof for not being experts on the finer points of tax legislation. But the defence of Mr Randell, that ‘it was an error of judgment’ to rely on an assurance that HMRC had approved the arrangement, rings extremely hollow.

He was a partner in Slaughter & May, one of the best legal firms in the land. He is supposed to know about these things. And even if the scheme had just about passed muster, Mr Randell’s ethical antennae should have been vibrating furiously.

This was exactly the sort of carefully confected financial arrangement that is not available to ordinary taxpayers – and that should have given him pause for thought. That’s why I believe, in the light of Mr Randell’s ‘error of judgment’, his appointment to chair the Financial Conduct Authority should not stand.

But this is not just about an individual, or even about the FCA – though to many people it will seem rum that investing in a notorious scheme should be seen as an acceptable slip for someone who is to become the custodian of financial probity.

This is about the wider culture of the financial services industry. All sections of society have their flaws, and sometimes have to be held to account. MPs, charity bosses, journalists, business leaders – we all make mistakes. But the financial services industry is under particular scrutiny. It has suffered a decade in which barely a month has gone by without news of a bank being fined or a company pension scheme going under. The public distrust of the industry is huge, and understandably so.

Yet it is an industry whose future is vital to the country. Financial services are our biggest export. Even people who present themselves as enemies of the City, as Jeremy Corbyn did this week, implicitly accept its importance. It is paramount that trust is rebuilt. That is why the FCA was created in 2013, for it was a key part of the overhaul of how the industry should be regulated. But instead of being part of the solution, it has become part of the problem. So what is to be done? Well, quite a lot has been done already. The banks have been brought to heel, and most of the issues for which they are now in the dock are historic ones. The big accountancy firms are at least aware that they need to revamp and improve the way they audit major companies. The pensions industry is being scrutinised and challenged.

Making the FCA an effective body that does what it says on the tin – overseeing financial conduct – is one major element of a clearing out of the stables which could take another decade. But it cannot be fixed by people who are themselves known to have invested in a dodgy scheme like this.