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Markets and Securities Services |
United Kingdom
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The TSC said that it expected HMT to “appoint
an independent reviewer to re-examine the
case for a separate enforcement body”.
The TSC agreed with the finding of Andrew
Green QC in his HBOS report
3
that the
regulatory regime in place at the time of
HBOS’s collapse did not encourage ambitious
enforcement action. The TSC said, “In order
to be a credible last line of defence, there
must be a perception that regulators are
able to undertake even the most challenging
and complex of cases”.
Parliamentary Commission on Banking
Standards (PCBS)
Importantly, the TSC’s concern over the
perceived failures in enforcement stem from
the failure of the regulators to take more
senior bankers to task as a result of the global
financial crisis. The PCBS report,
Changing
Banking for Good
, published in 2013, was
also concerned with the perceived lack of
regulatory action against bankers.
4
The PCBS did not go so far as to recommend
a complete separation of the enforcement
function from the regulators, saying that
“to propose this change now would involve a
new organisational upheaval for the financial
services regulators, almost immediately after
a major set of organisational changes have
come into effect”.
Decisions to invoke enforcement powers
are taken inside the FCA by the Regulatory
Decisions Committee (RDC). The PCBS said
that the RDC “is not best-suited to the
specific enforcement needs of the banking
sector”. The PCBS recommended “the
creation of an autonomous body to assume
the decision-making role of the Regulatory
Decisions Committee for enforcement in
relation to the banking sector”.
Winning the Global Race
In 2015, the British Bankers Association
(BBA) published
Winning the Global Race
,
drawing on the consultancy services of
Oliver Wyman.
5
This report was concerned
with the competitiveness of the UK as
an international centre and aimed at
“developing a strategy to safeguard the
position of the UK as a leading international
banking centre, hosting foreign banks and
UK-headquartered wholesale banks”.
Sir Hector Sants, formerly the CEO of the
FSA, was one of the Oliver Wyman consultants
who worked on the report. His involvement
inevitably created headlines when the report
was published.
The BBA said in its report:
6
The current remit of regulators covers
supervision, penalty and redress. This can
distort incentives and create the potential
for regulatory moral hazard and political
influence. Many contributors believed
that an independent body responsible for
redress would result in better outcomes, not
only for banks but also for their customers
in ensuring rigorous alignment of redress
amounts with the cost of any misdeed.
Among its twenty-three recommendations, the
BBA also recommended that the government
should “consider the creation of a new
independent body responsible for penalty and
redress decision-making”.
Fairness for banks and bankers
Perhaps unsurprisingly, the BBA’s concern
is not with the number of senior bankers
disciplined, but rather with the political
pressures placed on regulators that can lead
to unfair outcomes for banks and their staff.
The condemnation of bankers and banking
has been something of an international sport
for the last few years, but it is important that
standards of fairness apply universally. Banks
and bankers have the same right as anyone
else to expect a fair application of the law.
The existing regime
In order to understand whether the existing
regime should be changed, it is necessary
first to understand what it is. The following
description draws on the PCBS’s report. The
FCA’s processes may have changed somewhat
in the meantime, but are believed to be
broadly similar.
As mentioned above, the body within the
FCA that makes enforcement decisions is
the RDC. However, before a case can be
considered by the RDC, it must first be
referred by Supervision and considered by
Enforcement. Inevitably, some cases referred
to Enforcement may be rejected before
reaching the RDC, but Enforcement staff
work together with staff from the referring