Out-Law News 2 min. read

Treasury Committee renews calls for independent FCA enforcement function


The enforcement function of financial regulator the Financial Conduct Authority (FCA) should be independently reviewed in order to address concerns that it is not sufficiently independent, according to an influential committee of MPs.

Last month, the House of Commons Treasury Committee called for "serious re-examination" of the case for a standalone financial regulation enforcement body, separated from the supervisory functions of the FCA and Prudential Regulation Authority (PRA). It has now re-emphasised its position, following receipt of further evidence from Tim Parkes, the new head of the FCA's Regulatory Decisions Committee (RDC).

"Decisions made by the RDC must be taken on their merits – so the committee needs to be independent from the FCA, and demonstrably so," said Andrew Tyrie, the Conservative MP who chairs the Treasury Committee. "This is all the more important if enforcement is to become a credible last line of defence in regulatory armoury."

"The Treasury should commission an independent review of how enforcement is undertaken at the regulators, as previously recommended by the Treasury Committee. The appropriate structure for the RDC should form part of this review," he said.

The idea of separating the FCA's enforcement and supervisory functions was first raised in 2013 by the Parliamentary Commission on Banking Standards (PCBS), which was commissioned following the 2008 financial crisis to consider and report on professional standards and culture at UK banks. However, this particular recommendation was rejected by the Treasury. Although made up of representatives of both the Houses of Commons and Lords, the PCBS was also chaired by Andrew Tyrie.

Last month, the Treasury Committee concluded that a separate statutory body would "bolster the perception of the enforcement function's independence", as well as relieve some of the pressure on the overburdened FCA. The new body "could and should sit equidistant" between the supervisory functions of the FCA and PRA, it said, as part of a final report into the failures of previous regulator the Financial Services Authority (FSA) immediately before and following the bailing out by the UK government of HBOS, the bank, in 2008.

The Treasury Committee interviewed RDC chair Tim Parkes in January 2016, as part of its usual pre-appointment scrutiny of senior regulatory staff. During that hearing, Parkes committed to consider and respond to a number of questions on the composition, role and independence of the RDC in writing at a later date.

Parkes' written response was published by the Treasury Committee last week. In it, he said that he was "confident" that the RDC was "demonstrably independent in terms of the decisions it makes"; something that he described as "critical". He also set out his plans for "get[ting] the message out to consumers and the financial services industry that decisions made by the RDC on behalf of the RDC on behalf of the FCA are fair, objective and evidence-based", which he intends to do through a combination of conference appearances and annual reporting.

He also pointed out that the RDC would "depart" from the recommendations made to it by the FCA's executive committee "from time to time"; something that the FCA was not able to challenge. He gave examples of independent actions taken by the RDC including changing the basis of a case from deliberate to negligent misconduct, changing the amount of a financial penalty or dropping disciplinary action entirely.

Parkes has also suggested making changes to the composition of the RDC, to incorporate expertise in different areas including consumer credit and consumer issues. He is also keen to examine the possibility of recruiting "lay" members from outside the financial services industry to the committee, where those individuals "have the skills and attitude of mind required to make good quality decisions".

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