UK Treasury Committee Calls for Breakup of FCA After HBOS Failings

By having two separate regulators the Treasury Committee says that enforcement will always be given priority by one regulator.

Senior MPs are calling for a review of Britain’s financial watchdog, the Financial Conduct Authority (FCA), saying that it should be stripped of its powers to fine and ban individuals for wrongdoing, and that two separate regulators should be set up instead.

New Enforcement Function

The Treasury select committee said that the new enforcement function should be set up outside the FCA and the Bank of England and that it was seeking to address the issues raised by the report into the collapse of HBOS in which the blame was laid on its former bosses.

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The report also questioned why only one former executive faced sanctions.

The select committee’s report stated: “The current system, whereby the same organisation both supervises, applies and prosecutes the law is outdated and can be construed as unfair.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.”

Andrew Tyrie MP, chairman of the committee, said that creating a separate agency 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 Financial Reporting Council was also critisised for “a lack of curiosity” in not investigating the auditing of HBOS sooner.

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FCA: Current System Working

The FCA responded saying that “separating its enforcement division would potentially lessen its ability to be an effective regulator and impact its ability to protect consumers and ensure the integrity of the UK financial system”.

Last week, the FCA’s new chief executive, Andrew Bailey, said the agency was working on a new mission statement and that the current system of dividing regulation between the Bank of England and the FCA was working.

However, a recent report conducted by a commissioner overseeing financial authorities in the UK has also criticised the FCA for not only being too soft in the aftermath of the financial crisis, but also for not being vigilant enough in encouraging real reforms.

HBOS, once regarded as one of the UK’s biggest lenders, needed a taxpayer bailout of £20.5 billion after risky lending and poor management oversight drove it to the verge of collapse.

It is seen as one of the worst failures in British banking history after RBS which required a £45 billion taxpayer bailout, but with over twice the level of bad loans.

A formal response from the Treasury is expected at a later date.

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