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MPs call for break-up of financial regulator in light of HBOS ‘failure’

Written by: Hannah Uttley
A review of earlier reports into the collapsed bank HBOS has “strengthened” the case for a separate enforcement body at the Financial Conduct Authority (FCA), MPs have said.

The Treasury Committee has today published the Review of the reports into the failure of HBOS, looking at findings from the FCA, the Prudential Regulation Authority (PRA) and a separate report by Andrew Green QC of the enforcement decisions taken by the regulatory bodies after the HBOS crisis.

Chair of the committee Andrew Tyrie MP, said regulators’ ability to protect consumers from “spectacular regulatory failures”, was still “work in progress”, particularly at the FCA.

“The case for placing the FCA’s enforcement function in a separate body – proposed by the PCBS [Parliamentary Commission on Banking Standards] in 2013 and later rejected by the Treasury – has been strengthened by the findings of Andrew Green’s report,” Tyrie said.

“A separate body 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.”

HBOS, previously the UK’s largest mortgage lender, was acquired by Lloyds Banking Group in 2009 after it experienced plummeting profits in the build up to the 2008 financial crisis.

In conjunction with Green’s report last year, a review by the FCA and PRA into wrongdoing at disgraced bank HBOS concluded that the ultimate responsibility for its failure lay with the bank and its senior management.

Green’s review revealed that a former Financial Services Authority (the FCA predecessor) employee had admitted that ‘the people most culpable were let off’ from any enforcement action during the decision-making process.

Tyrie said the FCA and PRA needed to win the public’s confidence after it depended on persistent pressure from the Treasury Committee to ensure its failures were brought to light.

“The regulators failed, both before and after the HBOS crisis. The creation of the FCA and the PRA has been an opportunity to build something much better. This is still work in progress, particularly at the FCA,” he added.

Tyrie also accused the regulators of failing to shoulder responsibility by blaming pressure from politicians to engage in ‘light touch’ regulation. He explained that the purpose of granting statutory independence to the FSA meant it should ensure that it did not give in to calls for weak or inadequate regulation.

“The new regulators – the PRA and FCA – know that they must do better in future. They are on the case,” Tyrie added.

“Nor was parliament alert enough, prior to the crash. Scrutiny of the regulators failed to flag up these weaknesses. The Treasury Committee intends to do what it can to ensure that the regulators do a better job.

“Notwithstanding their own failings, prior to the crisis the regulators also lacked some of the tools they needed to supervise the banks. As a result of parliamentary pressure, not least from the Treasury Committee and the Parliamentary Commission on Banking Standards, the regulators now have these tools. These include major new powers, over the leverage ratio and with the electrification of the ring-fence. The Committee expects the regulators to demonstrate a very high degree of independence, and transparency, in their use.”

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