MPs call for creation of new financial enforcement authority
The treasury select committee released a report on Thursday highlighting the need for a new independent financial regulator following the failure of HBOS during the financial crisis in 2008.
Members of Parliament (MPs) have called on new chancellor Philip Hammond to separate the Financial Conduct Authority (FCA) enforcement division into an independent body.
“The current system, whereby the same organisation both supervises, applies and prosecutes the law is outdated and can be construed as unfair.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,” said the report.
Chairman of the Treasury select committee Andrew Tyrie first proposed this in 2014 but the Treasury decided against it.
HBOS, formerly one of the UK’s biggest lenders, required a taxpayer bailout of £20.5bn after risky lending and poor management brought it to an end in 2008. Corporate division chief of HBOS Peter Cummings was sanctioned after the bank’s collapse, receiving a fine and a life ban from financial services in 2012.
The initial report exploring HBOS’ downfall was released by Andrew Green QC in November 2015. Green felt the failure to not also investigate HBOS’ former chief executive Andy Hornby, “was not reasonable”. Successor bodies to the FSA, the Prudential Resolution Authority (PRA) and FCA are conducting investigations into former HBOs managers following this report.
According to the committee, “The collapse of HBOS, along with other UK financial institutions during the crisis, was the result of prudential failings” and the FCA “has no role in prudential supervision of banks” leading to the need for an independent enforcement function that “could and should sit equidistant between the PRA and FCA”.
According to chairman of the committee Andre Tyrie, the HBOS experience requires the regulator “to exhibit greater vigilance and energy if they are to win public confidence”.
The FCA has responded saying the separation would actually compromise their service. “The FCA has a range of tools at its disposal of which enforcement is an essential one. We believe that if this regulatory tool is separated from the FCA it 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 UK’s accounting watchdog, the Financial Reporting Council (FRC) has also come under scrutiny after it failed to investigate KPMG’s audit of HBOS in 2013, with the MPs' report saying its response suggested a “lack of curiosity and diligence”. Following pressure from Parliament and the Treasury committee, the FRC has finally started its investigation last month.
The committee expects the Treasury to appoint an independent reviewer to re-examine the case for a separate enforcement body.