The FCA in Focus: A Round-Up of Instances Which Show the Authority’s Competence and Impotence

Today’s post can be seen as somewhat of a ‘round-up’ of recent news concerning the Financial Conduct Authority (FCA). With the FCA featuring considerably in the news recently – amid the obvious cries of ‘what’s new!’ – it is worth discussing these particular elements for the purpose of asking some abstract, potential philosophical questions like ‘what is the role of the regulator in reality?’. The FCA has figured heavily already here in Financial Regulation Matters, particularly in relation to the regulator’s actions with regards to the ever-increasing debt bubble, and also the conduct of RBS a. in general and b. in relation to the ‘controversial’ i.e. potentially criminal ‘Global Restructuring Group’ and its systemic destruction of many small businesses. So, in furtherance of these analyses, the following provides ‘updates’, for want of a better term, to the developing progression of the FCA as a leading regulator in the U.K.

There are a number of stories recently that the FCA, no doubt, will view as ‘positive’ or, at least, potentially positive in terms of achieving a result which fits their mandate of consumer protection, so let us start with those first. The first point of call is the news today that the FCA has ordered BrightHouse, one of the leading ‘rent-to-own’ retailers in the U.K., to pay almost £15 million to consumers on the basis that it had not acted as a ‘responsible lender’ since 2010. Speaking today on a National radio station (found here – the interview begins at 1 hour 38 minutes in), the Chief of the FCA, Andrew Bailey, defended the decision to allow BrightHouse to settle, rather than have a fine imposed, because it allowed for the expediting of the process. The conduct of the firm was particularly distasteful in that its consumers, many of whom have been facing particularly fraught debt-related issues since the onset of the Crisis, were not having their ability to pay ‘properly assessed’ and were having their returns/refunds delayed excessively; as one onlooker correctly stated – the firm ‘regarded its customers as cash cows’. This particular sector is the subject of vehement, and absolutely justified criticism, from a number of influential people and organisations like the Financial Inclusion Centre, who found that the cheapest washing machine available at BrightHouse cost over £1000 spread over three years, whilst the same product cost £250 at normal high-street retailers; the obvious inference here is that these firms pray upon those who are not financially-confident or competent, by way of welcoming those in under the guise of apparently small payments and increased availability. On this basis the FCA will see this as a ‘win’, and certainly something which it can point to demonstrate its effectiveness at protecting the consumer. However, it has been involved recently in more large-scale investigations, with two instantly coming to mind.

The first development is the news today that the regulator has initiated investigatory proceedings against the credit reporting firm Equifax, which is reeling from a hack that apparently began back in May and has snowballed into a full-on crisis which has sent its stock prices tumbling and its management structure decimated upon claims of improper conduct. The hack, which apparently put over 143 million people’s (mostly American) personal data at risk, has also been noted to have affected nearly 700,000 British customers as well, which has formed the basis of the FCA’s investigatory glare. It is being stated in the business media that, acting on pressure from the Treasury Select Committee, the FCA is pushing forward with an investigation that has, as just one of its punishment options, the ability to strip the company of its right to operate in the U.K., if found to be negligent in its handling of sensitive and personal data. Whether things escalate to this level is another matter entirely, but the sentiment that can be extracted from this action adds to the FCA’s claim to be operating upon its mandate to protect British consumers. However, the FCA does branch out away from this sentiment, to some extent, and that can be witnessed by the news that, yesterday, Bank of America Merrill Lynch had been fined £34.5 million for a ‘transaction reporting failure’, its third in a decade. In confirming the regulator’s penchant for timeliness, the Bank was allowed to settle with the regulator and received a 30% discount on its original fine of £49.32 million as a result, although the FCA were clear that this move, which was the first under the new E.U. ‘European Markets Infrastructure Regulation (EMIR)’ regulations, represented the regulator’s adherence to the need for there to be a ‘line in the sand’ when it comes to financial institutions reporting their many transactions. These aspects, although not formally declared by the FCA as such, will be seen (internally at least) as positive developments and demonstrations of their purpose and capabilities. However, all is not as rosy as that viewpoint would suggest and, in reality, the FCA is under huge pressure to operate in a much more transparent and developed manner.

There are a number of elements which provide evidence for this claim that the FCA are, potentially, going through a crisis at the moment, but there is one in particular that this post will focus on. There are two other stories – no less important – which will not be covered here in any great detail. For completeness, the first is the story found here that claims for mis-sold PPI have skyrocketed in the previous year, which is proving to be controversial given that the FCA have imposed a 29^th August 2019 deadline for complaints. The second story relates to criticism that the Authority is facing with regards to its handling of the investigation over the LIBOR-rigging scandal, in which it has been suggested ‘serious errors’ were present which, potentially, undermined the integrity of the investigation itself; the Complaints Commissioner found that, in relation to the FCA’s handling of investigations into the conduct of two former bankers in particular, there had been ‘considerable failings’ – this has been accepted by the regulator. However, there is a much bigger storm brewing that not only brings the FCA into the limelight, but should also raise more systemic questions over what a regulator can do in reality.

That storm, which is something that has been consistently analysed here in Financial Regulation Matters, across the business media and almost every other format, is the Royal Bank of Scotland (RBS). Previously, it was discussed in this blog that the FCA obtained an independent report into the conduct of the GRG unit within RBS, but had only released snippets of it to the public. Since then, the regulator has come under increased pressure from the Treasury Select Committee to publish the full report, and in response the FCA claimed that it would provide the Committee with the report shortly, but with the details to be kept private – the report will be assessed by an ‘independent legal advisor’ on behalf of the Committee. The reason for this, according to Bailey on the Radio Programme this afternoon (see above), is that there is the potential for a number of individuals to be implicated by the report, and thus publishing the report would breach certain standards of confidentiality. Yet, these developments, when viewed in light of the reported facts that 92% of the businesses put into the Group’s remit never made it out again, and that there was ‘widespread inappropriate treatment’, has the obvious effect of suggesting that the FCA is ‘covering’ for the Bank, which is something Bailey denied vehemently in his interview. At the moment, the current state of affairs is that the Report, in full, has yet to be published, the Select Committee are actively criticising the regulator for delays, and the widespread viewpoint in the media is that ‘RBS could face further action’ – there can be no doubt that this story will continue to develop in the coming days and weeks. However, there is something which must be acknowledged as lying underneath all of these developments.

The FCA is acting quickly to secure, what are in reality, relatively small victories against companies that will either a. accept the punishments without much complaint (BrightHouse) or b. without feeling the effect (Bank of America Merrill Lynch). However, the really big issue – the treatment of SMEs at the hand of one of the largest banks – is being drawn out. Bailey’s reasoning that confidentiality is an issue is a valid one, of course, but for anyone who believes that this may be the start of meaningful and effectual action, this author suggests they pause for a moment. The real reason for the FCA’s inaction is that, in reality, RBS is simply too big to fail (TBTF). Whilst the commonly accepted notion of TBTF applies here, in that an organisation has grown to a size whereby it is intertwined with the economy, the issue here is one of timing. This is because as the bank continues to fail, reporting profit loss after profit loss and lurching from one conduct-related crisis to another, the environment within which it sits simply cannot cope with a failure of this magnitude – with the social, political and business climate being consumed with the insecurity that had to accompany withdrawing from an bloc like the E.U., the U.K. simply cannot afford RBS to fail – the effects would be truly catastrophic, particularly so close to the last Crisis. Therefore, is it right that the Select Committee complain so openly about delays? Yes. It is right that valiant campaigners across society campaign on behalf of those intrinsically damaged by the actions of this particularly venal organisation? Of course. Yet, in reality, and rather unfortunately one would like to add, the FCA, or any other regulator for that matter¸ cannot take effectual action – the country cannot afford it. So, what will happen is that Bailey will continue to receive the brunt of the criticism for inaction on radio stations, in the media, in Committee hearings, because that is his job. If we understand this, that regulators can only do so much because they are either under-resourced, not capable or willing to give out meaningful punishments like criminal sanctions for criminal behaviour, or simply hamstrung as they come across these societally-engrained behemoths that have become too-big-to-fail, then the result will be that our ire is directed towards those that count. Policies that aid in this growth need to be addressed, lobbyists who consistently lobby democratically-elected officials to protect their clientele at the cost of the public should be publically admonished, and ultimately, the perpetrators of these crimes should be held up high in society as criminals and treated as such; for some reason, that all sounds fanciful, which is quite a conclusion.

Keywords – FCA, RBS, BrightHouse, Debt, Merrill Lynch, Crime, Corporations, Banking, Regulation, @FinRegMatters.