How the City watchdog went soft on banks

SHOOT first ask questions later might sound like a quote from a Western movie. But the phrase was used by the former boss of the City watchdog to describe plans to crack down on the UK’s scandal-hit banks.

Martin Wheatley made the infamous comments shortly after being picked by the Chancellor George Osborne to become the first chief executive of the Financial Conduct Authority, which started life in April 2013.

After the misery caused by the financial crisis and a string of mis-selling scandals, the FCA was under pressure to be more aggressive than its discredited predecessor, the Financial Services Authority.

Wheatley’s combative approach infuriated the City but won him the admiration of many consumer campaigners, with the watchdog dishing out a record £1.5bn in fines in 2014.

The FCA was praised for its swift investigation of the foreign exchangerigging scandal, which culminated in huge fines for a string of banks including Barclays and HSBC.

But the financial services industry finally got its revenge last summer, when Wheatley was sacked by the Chancellor.

The regulator had fallen out of favour after a number of gaffes.

These included the bungled leak by the FCA of an impending probe into old pensions and insurance policies which wiped billions off insurance company shares.

An apoplectic Osborne accused the watchdog of damaging the ‘UK’s reputation for regulatory stability and competence’.

But there are many who believe the real reason Wheatley was sacked is that Osborne wanted a less combative regulator who could build bridges with the UK’s powerhouse financial service sector.

Osborne paved the way in his Mansion House speech last June when he spoke of a ‘ new settlement’ with firms. This was widely seen as a call to end ‘banker bashing’ and adopt a less aggressive approach to regulation.

It appears to have made a significant impact.

THE following month Osborne announced in his summer budget that the bank levy – introduced in the wake of the financial crisis – is to be gradually cut.

The decision was a coup for the banking industry, and particularly HSBC, which has been threatening to move its headquarters overseas.

But critics – including MPs on the Treasury Committee Select Committee – are worried that the Government’s desire for rapprochement with the banking industry has filtered through to the FCA, which is supposed to be entirely independent.

The FCA is accused of becoming an increasingly soft touch under acting- chief Tracey McDermott, who had previously gained a fearsome reputation as head of the watchdog’s enforcement division. Events over the past few days have given the FCA’s detractors plenty of ammunition.

The regulator was l ast week accused of buckling under pressure from the Chancellor to ditch a major probe into the culture of banks. It has also emerged it has decided to let HSBC off the hook for helping wealthy clients dodge tax in Swiss bank accounts.

And yesterday it emerged that the watchdog has decided not to publish the findings of a separate probe into investment advice given by independent financial advisers and bank salesmen. The probe focused on ‘inducements’ such as corporate hospitality used by banks, fund managers and insurers to persuade financial advisers to sell their products.

Despite a string of scandals there are fears these perks could encourage more mis-selling.

There was more good news for the banking industry in October when the FCA confirmed plans to impose a two-year time bar on payment protection insurance complaints. Having set aside more than £26bn to compensate customers, banks have lobbied for a deadline in a desperate bid to draw a line under the scandal.

James Daley, founder of consumer website Fairer Finance, said the sacking of Wheatley was a watershed moment.

‘Since the pro-consumer Martin Wheatley was sacked there has been a steady drip of stories that suggest the FCA is now taking a very different tack,’ he said. ‘There certainly does appear to be a sea-change in the regulator’s approach to the banks when the job is only half done. A credible theory is that HSBC and Standard Chartered were holding a gun to the Government’s head and said they will move their headquarters abroad unless you go a bit easier.’

The sentiment was echoed by Martin Lewis, founder of finance website Money Saving Expert and a prominent consumer campaigner.

He said: ‘I’ve met with Tracey McDermott and been told that they have not changed their stance. I simply don’t believe it. My suspicion is this is all coming from the Treasury. It is very worrying that we might be going back to the bad old days of letting banks do what they want.’

The Treasury last night stressed the FCA is independent and that suggestions ministers persuaded it to drop investigations are ‘false and misleading’.

A spokesman at the FCA said: ‘A focus on the culture in financial services firms remains a priority for the FCA.’