The Financial Conduct Authority (FCA) should be stripped of its powers to fine and ban individuals for wrongdoing, according to a report by MPs that calls on new chancellor Philip Hammond to commission an independent review into whether an alternative investigatory body should be set up.
The Treasury select committee said a new enforcement function should be set up outside the FCA and the Bank of England. Such a move would address the issues raised by the report into the collapse of HBOS, which was published in November 2015.
That report laid the blame for HBOS’s collapse on its former bosses but also questioned why only one former executive faced sanctions.
The select committee’s report said: “The current system, whereby the same organisation both supervises, applies and prosecutes the law is outdated and can be construed as unfair. By moving enforcement away from supervision, it can focus independently on undertaking its key functions: interrogating evidence and assessing whether a regulatory breach has been committed”.
In calling for a separate enforcement body to be set up, the Treasury select committee is repeating a suggestion in 2013 by the parliamentary commission on banking standards that was rejected by the then chancellor, George Osborne.
Andrew Tyrie, chair of the Treasury select committee, said: “A separate body would bolster the perception of the enforcement function’s independence, and provide the regulators with greater clarity over their objectives. The case for separation merits serious re-examination. The Treasury should appoint an independent person to undertake a review”.
The regulator at the time of the HBOS collapse was the Financial Services Authority – now split between the FCA and the Bank under changes brought in by the 2010 coalition government. The Treasury select committee said the ultimate responsibility for the “omission and failures” that led to an investigation into one former HBOS executive lay with the then FSA chief executive, Sir Hector Sants.
Sants, it had emerged at the time of the November 2015 report, had wanted to pursue enforcement action and had not been told there were grounds to investigate executives other than Peter Cummings. Sants declined to comment.
Tyrie said the new regulators were an opportunity to “exhibit greater vigilance and energy if they are to win public confidence, which has on occasion been lacking”. He added that the FCA was still “work in progress”.
The Treasury said it would respond formally at a later date. “The shortcomings that led to the failure of HBOS in 2008 prove that the government was absolutely right to overhaul our system of financial regulation,” a Treasury spokesperson said.
“Our reforms directly address the regulatory failings identified in this report,” the Treasury spokesperson said.
The FCA said separating its enforcement division 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”.
The Treasury committee said that in the event of another bank failure, the public should not have to wait so long – seven years – for a report into what went wrong.
It also criticised the accounting body, the Financial Reporting Council, for “a lack of curiosity” in not investigating the auditing of HBOS sooner. The FRC announced an investigation last month.
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