The chairman and three other board members of the Financial Conduct Authority faced calls to quit on Thursday because of conflicts of interest related to the ongoing investigation into the collapse of HBOS.
The FCA chair, John Griffith-Jones, recused himself from board meetings to discuss the eventual report into the circumstances surrounding the rescue of HBOS by Lloyds TSB in September 2008, because his previous employer, KPMG, had acted as auditor to the troubled bank.
The other directors also caught in a conflict of interest are the head of enforcement, Tracey McDermott, the head of supervision, Clive Adamson, and the chief operating officer, Lesley Titcomb. They worked for the FCA's predecessor, the Financial Services Authority.
The directors are part of the 12-member board of the City regulator, which was holding its first public meeting since it was created in April 2013.
Philip Meadowcroft, a member of the public and long-time campaigner over such issues, said: "As four members ... have admitted conflicts of interest as far as dealing with HBOS and cannot take a normal role in board meetings, surely the only way forward to begin to rebuild essential trust in the FCA board is for these conflicted board members to resign and be replaced by new members who are not tainted by a prior connection with the collapse of HBOS."
The investigation report was long overdue, he said, because the regulator had said a year ago that Maxwellisation - the process that allows individuals mentioned in a report to see extracts relating to them in advance - was due to begin, but had yet to happen.
Last week the FCA was forced to reopen its investigation, which has examined – following pressure from the Treasury select committee – whether former HBOS management team members should be banned from working in the City.
Griffith-Jones asked the non-executive director Sir Brian Pomeroy, who is overseeing the HBOS report, to respond. Pomeroy said "nothing was being hidden" and that the report should be published at the end of the year.
Martin Wheatley, chief executive of the FCA, later acknowledged that any further delay in publication caused by a decision concerning former HBOS directors would be "a concern to everyone".
He said that more big fines could be expected after a flurry of penalties for Libor rigging, for which two or three more cases were pending, and for mistreatment of customers.
"The capacity of the industry to surprise with bad conduct is something that is a concern to us," Wheatley said.
He added that the use of lawyers' letters, sent out by banks and other firms in attempts to get unpaid loans settled, was a "live issue".
Wonga has recently been ordered to pay £2.6m compensation for sending letters to customers appearing to come from legal firms which do not exist. MPs have also criticised Lloyds Banking Group for sending letters from legal firms to recover debts.
Wheatley said the FCA was gathering more information about the use of such letters. He said the remaining Libor cases, first blown into public view in June 2012 when Barclays was fined £290m and when the regulator said another seven firms were being investigated, were not as serious as those concerning the six firms already punished.
"They weren't as serious as the cases we took first. There are complications where it has become clear we are not just looking at Libor and in some cases the need to co-operate with other agencies ... Our resources are not unlimited. We prioritise the cases," Wheatley said.
Criticism was also aimed at Adamson, who gave a selective media briefing at the end of March to discuss a wide-ranging review of the insurance market, which led to a drop in share prices across the sector and prompted Legal & General to issue a stock market statement to demand clarity from the regulator. The FCA has commissioned a review into the briefing, which is not yet completed.
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