ICT Views

Is the FCA being obstructive?

by: (Course Director - Governance, Risk & Compliance) on

The Parliamentary Treasury Select Committee held an evidence session with the Chairman and the Chief Executive of the FCA on 9th September as part of its ongoing scrutiny of the regulator.

You may have seen reports of the criticism of the regulator by the TSC with headlines of MPs being ‘fed up’ and that the FCA was described as being ‘obstructive’ and not willing to share information about how it operates and takes decisions which affect financial services consumers. In particular, committee members raised their concerns over three specific issues: their request so see internal audit reports; their request to understand the basis on which legal opinion and counsel is obtained; and finally understanding how they could scrutinise ‘deals’ that are made with banks under investigation to avoid lengthy and expensive court actions (and so that consumers who are owed redress are compensated sooner).

Freedom of Information

The TSC was keen to secure commitment from the FCA that they would receive enough information in a timescale which makes their scrutiny relevant. They want to avoid retrospective reviews some way down the line that are too late to be of any value, but also know that real time consultation between the FCA and the TSC was impossible. There would be an added benefit in this transparency of enhancing confidence within the markets, the financial services industry, and the consumers, in the FCA.

Magnifying glassA telling quote comes from John Thurso MP, a TSC committee member and member of Parliament for Caithness, Sutherland and Easter Ross: ‘we are fed up and there is deep disquiet about the apparently slow and obstructive approach we have had on a number of issues we have raised…..with the FCA…..we need a good deal of co-operation that we have not always seen in recent months on a number of variable issues.’

Clearly there is a need for some of the FCA’s processes to remain out of the public domain for them to remain effective, but surely reporting to the TSC as requested is not necessarily entirely in the public domain? So, fair criticism? The minutes do contain tough questions being asked and in some of these, the responses were not particularly forthcoming.

Do unto others?

It does raise an interesting situation. Principle 11 of the Principles for Business, the cornerstone handbook of the UK regulatory landscape, requires firms to be open and honest with the regulator. And, the FCA clarifies how important these high level standards are – ‘the overarching requirements for all authorised persons.’ Therefore, they expect the firms it regulates to provide them with all the information they ask for and can reasonably expect to receive. And there have been enforcements where a breach of principle 11 was identified.

So, is the TSC reasonably expecting the FCA to provide them with information they should have? That is a key question. As the TSC needs to scrutinise the regulator’s decision making processes, then they need to see the information on which the decisions were based. That is reasonably obvious in terms of legal decisions and agreements being made with banks, and sight of internal audit reports would promote transparency.

It is possible to argue that there are some double standards – and it’s a good headline for an article – but what is clear is that questions are being asked of the FCA that they need to be able to answer, and answer before the next scheduled meeting.

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