Deference, rather than Brexit is the regulator’s biggest problem | Business

There is a glacial pace to activity at Britain’s main financial watchdog. Partly that is the fault of Brexit, which has robbed the organisation of funds and to some extent the energy needed to think of anything other than how quitting the European Union will affect the City.

But its clear from the Financial Conduct Authority’s plan for the year ahead that much of the delay is not Brexit related, but comes from a deep-seated reticence to interfere in the workings of the Square Mile.

The move by a New York regulator to slap a $15m (£12m) fine on Barclays after its chief executive Jes Staley tried to unmask a whistleblower, is a case in point.

Staley escaped financial penalties in the UK. Instead the FCA asked Barclays to file annual reports detailing whistleblowing allegations against the bank’s senior managers.

Another instance concerns the collapse of Halifax Bank of Scotland (HBoS) and its takeover by Lloyds following the 2008 banking crash, which many believe should have resulted in the former HBoS executives being barred from the City and fined. Sadly, a report is still pending.

Separately, a study by the FCA of a fraud by HBoS staff at the bank’s Reading branch is still under wraps after more information came to light last year.

Some movement is discernible. The watchdog’s inability to pursue executives at Royal Bank of Scotland’s Global Restructuring Group unit following the mistreatment of small business customers will trigger a broader report later this year on exactly how far the FCA’s regulatory “perimeter” extends.

This after FCA lawyers ruled that small businesses lay outside the scope of its sanctions regime and nothing could be done to bring a case against RBS.

Andrew Bailey, the FCA’s chief executive, is at pains to say how difficult the regulator finds defining a border when the instinct of almost every finance firm is to jump outside if it possibly can.

His example is funeral plans, which until a couple of years ago were mostly considered insurance policies and were therefore regulated. A ruling on the definition of what makes a funeral insurance product allowed the designers to construct plans that escaped regulation and most are now outside the FCA’s jurisdiction.

The complexities Bailey highlights reveals his misgivings and the likelihood that a report on the FCA’s perimeter is only going to be a starting point in a discussion rather than a detailed plan for ministers to implement, most likely resulting in more delay.

Bailey in the climate frame

Bailey avoids the subject of climate change in the FCA’s annual business plan. It’s a financial stability issue, he says, which is a matter best left to the Bank of England and its offshoot, the Prudential Regulatory Authority.

His comments follow a letter in the Guardian by BoE governor Mark Carney and his French counterpart. The central bankers argue that banks and insurance companies could find themselves in serious financial trouble if their investments in assets affected by climate change (from beach front properties to coal mines) become worthless.

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Labour’s John McDonnell agrees and goes further, arguing that the Bank of England should do more than just warn the City.

It’s a message that taps into a growing realisation that climate change is less a matter for endless discussion and more an emergency, like a Cathedral fire. For instance, banks could be forced to hold higher reserves if they take climate risks with their own money.

Then there are the trillions of pounds invested on behalf of individual investors. Do they know their money is at risk? Bailey is in the frame if retail investors should be told how much their Isa savings, investment trust or pension is invested in assets vulnerable to climate change. What about a traffic light warning system on all investments, mimicking the food industry sign for high levels of saturated fats, sugar and salt?

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