FCA being shut out of Brexit talks with EU counterparts – Financial Times
The head of the Financial Conduct Authority told the FT in a recent interview that the regulator was now excluded from some talks at the European Securities and Markets Authority — the umbrella group that oversees regulators from across the EU — on sensitive topics such as the future relationship between the UK and the EU, or what ESMA expects of UK firms looking to establish a presence in the EU.
“There are times when they want to discuss Brexit without us being present, and there are issues they want to discuss amongst themselves, so we have a bit of shuttling in and then shuttling out,” said Andrew Bailey, chief executive of the FCA.
ESMA confirmed that the UK had been shut out of some talks, but declined to comment further. Officials told the FT that a similar relationship now exists between the Bank of England’s Prudential Regulation Authority and the European Banking Authority.
For Mr Bailey, who has spent years carefully building positive relationships with international regulators, the new wind blowing must be particularly chill.
There are times when they want to discuss Brexit without us being present
The solid reputation of Mr Bailey, 58, and his ability to navigate difficult situations were seen as part of the reason why former UK chancellor George Osborne chose him as a “safe pair of hands” to steer the FCA out of an 18-month leadership crisis last year.
Mr Osborne had swiftly dismissed Martin Wheatley — who ran the FCA at the time of the benchmark-rigging scandals and was known as a scourge of the City — weeks after the Conservatives won a majority in the 2015 UK general election.
The dismisal — and subsequent year-and-a-half without a permanent replacement — left the agency rudderless at a time when it was facing heightened political scruitny.
Just over one year later, it seems like a lifetime ago. Mr Osborne is now a newspaper editor (among other roles), the Conservatives have lost their majority, Mr Wheatley is advising hedge funds and Mr Bailey has to contend with the UK’s largest constitutional change in modern times.
Brexit, unsurprisingly, is the regulator’s biggest project. The FCA’s main task is to work with the government with the huge exercise of cutting-and-pasting existing EU rules onto the UK statute books as part of the “Great Repeal Bill”. The FCA has had to hire 15 extra lawyers to help with the task.
But Mr Bailey questions whether parliament is ready for the amount of very technical legislation that it will have to scrutinise in a short period of time.
“The European parliament takes a bigger scrutinising role… and that’s not what the Westminster parliament is particularly in the business of doing,” he said. “It’s come back a bit recently with things like ringfencing and the Senior Managers’ Regime, but they’re the exception, not the rule, for Westminster.”
Ringfencing is one of the UK’s major post-financial crisis reforms, forcing lenders to separate their retail and investment-banking operations by 2019. While the PRA has led the project, the FCA is now telling banks to inform customers that their sort codes may be changed in the ringfencing process. The regulator is particularly concerned about possible fraud resulting from the changes.
The Senior Managers’ Regime comprises the tough new accountability rules brought in after the crisis to try to clean up conduct in City. The first executive known to be investigated under the rules is Jes Staley, Barclays’ chief executive. He tried to unmask the identity of a whistleblower and later apologised, but the FCA and PRA are looking into the matter.
City executives see it as the case that will define Mr Bailey’s tenure at the FCA, saying it may even determine whether he goes on to succeed Mark Carney as governor of the Bank of England. Many commentators speculated that Mr Osborne promised Mr Bailey the top job at the BoE in exchange for quitting his then-role as deputy governor of the bank and head of the PRA for the FCA role.
But Mr Bailey rejected the suggestion, saying he would “really react strongly against the view: ‘Here’s a case that’s going to make or break the FCA, and what do we want to do?’”
“We have a very formal decision-making process,” he said. “I don’t sit there thinking: ‘thumbs up or thumbs down?’”
The Barclays case is a rare example of a major FCA enforcement case in the public domain, compared to previous years, which were dominated by misconduct scandals such as benchmark-rigging or the mis-selling of payment protection insurance.
Mr Bailey has previously called the misconduct scandals the “second financial crisis”.
“I’d like to think that that era will be over,” he said, before adding: “We’re still playing some of it through.”
Ongoing issues include an investigation into the former bosses of HBOS — prompted by an excoriating report into the choices made by the FCA’s predecessor, the Financial Services Authority — and a 2019 deadline for PPI mis-selling claims.
Internally, one of Mr Bailey’s biggest challenges at the regulator has been motivating its previously-demoralised 3,350-workforce, which now faces a move from Canary Wharf to Stratford in east London.
Rather than views of some of the biggest regulated firms like HSBC and Barclays, the FCA will soon be overlooking a John Lewis, the Olympic swimming pool and — gallingly for a West Bromwich Albion fan like Mr Bailey — the West Ham stadium. A rumour among FCA staff held that the move was so unpopular that it would prompt as many as 30 per cent of employees to leave.
“That was said,” Mr Bailey conceded, but added that the regulator’s turnover rate had “come down” from its peak of 15 per cent last year.
“Yes, the view will be different,” he added about the new office. “But we supervise 56,000 firms and only some of the larger ones are down the road.”
The FCA under Andrew Bailey
* fined Deutsche Bank £163m, the UK’s largest ever money-laundering fine, for Russian “mirror trades”
* put a 2019 deadline in place for PPI mis-selling claims
* warned credit-card companies that they may have to waive interest and charges for the 3.3m people stuck in “persistent debt”
* overhauled rules for the UK’s £7trn asset-management sector in an attempt to wipe out conflicts of interest