Last updated:
January 12, 2016 9:15 pm
http://www.ft.com/intl/cms/s/0/414f6e0c-b918-11e5-b151-8e15c9a029fb.html
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A Bank of England official oversaw the move by the City regulator to scrap a review into Britain’s banks,
it emerged on Tuesday, just a day after the Financial Conduct Authority
insisted external pressure had not influenced its decision.
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Whose decision was it to drop UK bank culture review?
Megan Butler, an executive director at the BoE’s Prudential Regulation Authority
(PRA), was a key figure overseeing the plans to drop the FCA’s inquiry
into whether banks had changed their working culture since the financial
crisis, according to documents seen by the Financial Times. She was
parachuted in to the City regulator at the start of September on
secondment.
The revelation of her involvement threatens to fuel political
concerns that the regulator came under outside influence to drop the
probe. John Mann, a Labour MP on the Treasury select committee, called
for Ms Butler to appear as part of a special hearing the committee is
holding next week over the shelving of the review.
Ms Butler arrived at the FCA shortly before Martin Wheatley was forced out of his role as the regulator’s chief executive; the decision to drop the inquiry was made two weeks after his departure.
A Bank of England spokesperson said the central bank had no influence or role in the FCA decision and it would be wrong to suggest otherwise. “The Bank of England has consistently raised issues around banking culture and over the last year has completed its review into fair and effective markets and introduced rules on the senior managers regime and bankers bonuses which aim to improve accountability across the sector.”
The PRA and FCA were created when the old City regulator, the Financial Services Authority, was split in two in 2013; a plan that had been part of the Conservative manifesto in 2010, essentially reversing a move by Labour more than a decade earlier to strip the Bank of England of banking supervisory powers.
The PRA, part of the BoE, is in charge of ensuring the safety and soundness of lenders’ and insurers’ balance sheets, while the FCA takes the lead on conduct and consumer protection across the financial sector.
Since the Conservatives’ outright victory in last May’s election, the government has sought to take a less confrontational stance towards the City — a shift echoed by regulators.
The FCA’s decision to drop the review caused a political uproar and sparked accusations that it stemmed from pressure from the Treasury. The FCA said on Monday it had not held “any discussions” with the BoE, the PRA or the Treasury “about not continuing with the project”.
In response to a Freedom of Information request, the FCA said it had first informed the PRA of its decision not to continue with the probe on December 17.
Ms Butler was a key figure at the Bank, playing a “major role in
shaping the PRA” as a “highly valued member of the senior management
team”, said Andrew Bailey, chief executive of the authority, when her
secondment was announced.Regulatory insiders stressed that her secondment to the FCA did not equate to her being the PRA’s eyes and ears within its sister regulator.
©Bank of England
Megan Butler arrived at the FCA just before Martin Wheatley was forced out
Ms McDermott, who was widely tipped to take the chief executive role full-time, pulled out of the race to succeed him, in a move announced by George Osborne, the chancellor, last week.
City executives tend to see the PRA as a more approachable regulator than the FCA, while Mr Bailey has won plaudits in Whitehall and among bankers and his fellow BoE officials for his measured style.
The regulator originally planned its review to
focus on how the “tone from the top” of banks was reflected in middle
management appraisals, pay and promotions, and how concerns were raised
and acted on at retail and wholesale banks.
But in its internal paper from September, devised by a number of
people at the FCA, the watchdog proposed it should no longer be involved
in assessing how banks treated staff who raised concerns internally,
because this could be better examined by other means, including by the
Banking Standards Board.The FCA said it would not publicise “good” and “poor” practices at banks because it was not perceived as being the expert on working culture. Instead, it said the onus was on the industry to identify and measure good practices.
The paper also noted that obstacles to cultural change at middle-management level were a key risk for the retail banking sector only, rather than wholesale banks. But it admitted the success of this approach would be “dependent on the willingness of firms to participate”.
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