Tracey McDermott, the City regulator responsible for imposing a record £1.4bn in fines on errant banks this year, has a hate list: “I hate the fact that it’s still relevant that I’m a woman.
'The other things I hate, I’ll go through my hate list, I hate the fact that it’s relevant I’ve got children, I hate the fact it’s relevant I went to a comprehensive school and come from Rotherham.”
As head of enforcement at the Financial Conduct Authority (FCA), McDermott does not, however, appear to have banks on her hate list – which may surprise some of those who work in the City and have been at the receiving end of a record set of fines this year.
So is she shocked by the seemingly endless rollcall of errors and misdemeanours? “Not any more”.
The low-key fine on Standard Bank with which her department began the year gave few clues to the crescendo that would develop by the end of this year when the bailed out Royal Bank of Scotland, HSBC, Swiss bank UBS, and US firms Citigroup and JP Morgan were each hit with record fines for rigging the foreign exchange markets.
They came after numerous other fines imposed for misconduct. Barclays was fined £26m for rigging the gold market, RBS got hit for £42m for the huge inconvenience to customers caused by its June 2012 IT meltdown and Lloyds Banking Group had to hand over £105m for rigging Libor – a key interest rate which influenced the price it paid for its emergency funding during the banking crisis.
Then, just as the year was drawing to a close, top fund manager Jonathan Paul Burrows was banned from working in the City as a result of his dishonesty and lack of integrity after dodging almost £43,000 in train fares.
For George Osborne, the fines have been a windfall to spend on the NHS after he changed the rules following the 2012 Libor rigging scandal to stop the proceeds going back to the City.
McDermott refuses to offer a view on the way the fines are used: “The fines are a means to an end,” she says. “We don’t just do it for the sake of doing it.”
One of the City’s most senior officials, she recently told an audience of bankers that the depth of cultural change needed to clean up the Square Mile was similar to attitudes to drink driving, which have altered between her generation – she is in her early 40s – and that of her parents. Fear of fines gave way to a fear of the response of wider society. The same shame factor, she reckons, needs to become established in the City.
She doubts that culpable individuals intend to commit wrongdoing. “With some exceptions, most of these people are not setting out deliberately to do what they think is the wrong thing,” she says. “It’s sort of more of a game, it’s what they’ve seen other people do. It’s what they’ve seen the people who … get the reward, in terms of status or reputation, do – so they just drift into that. It’s a resetting of the mindset that has to happen, which will take time.”
McDermott acknowledges that the regulator, created 18 months ago when the coalition scrapped the Financial Services Authority, can also improve. It was the Libor rigging fine imposed on Barclays in June 2012 – which was also the first time an incriminating cache of electronic chats between traders was exposed – that prompted the FCA’s attempt to coordinate the penalties on multiple banks for rigging forex. The Libor investigation, however, is still dragging on 18 months after that fine on Barclays.
Likewise, the payment protection insurance scandal, which has cost the banking industry more than £20bn, has encouraged the regulator to take a tougher approach to consumer credit, which it took over responsibility for policing this year.
The FCA is also facing changes to the way it operates as a result of a scathing report, published earlier this month, into how it leaked a story to the Daily Telegraph which led to billions of pounds being wiped off the share prices of insurance companies.
McDermott gives few clues to what is in store for 2015, although she has recently been promoted to director of supervision and authorisations as the FCA is restructured in an attempt to sharpen its focus.
There is a new regime which puts more onus on those at the top of financial organisations to take responsibility when things go wrong – a regime prompted largely by the fact that the bosses of the banks that failed in 2008 faced no legal action.
But the new rules, McDermott says, cannot ensure there will never be another bank crisis: “The fact that a bank goes bust does not necessarily mean that somebody has done something which should attract disciplinary sanction. The fact that someone makes bad business decisions should not necessarily mean that someone attracts disciplinary action. You may find that somebody who takes bad business decisions [is] not fit to run that sort of institution again, but that’s a different question as to whether you should actually penalise them.
“What we are not expecting is perfection. Things will still go wrong, judgments will turn out with the benefit of hindsight to have been wrong.”
And there will always, she says, be some problems that regulations to improve standards can never address: “There will still be, at the extreme end, crooks within every organisation who will try to get around every control you put in place.”
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