A report issued by the committee examining the collapse of UK high street bank HBOS described the current situation, whereby most of the United Kingdom’s regulatory enforcement expertise sits within the FCA, as ‘far from satisfactory’.
A separation of some parts of the FCA to form an ‘enforcement body’ operating across all financial services companies including the large banks therefore ‘has merit’, the report said.
A separate statutory body would bolster the perception of the enforcement function’s independence, the committee argued.
The FCA’s multitude of objectives and initiatives are leading to regulatory overload, the report said.
The current system with either the FCA or Prudential Regulatory Authority (PRA) supervising, applying and prosecuting the law is outdated and can also be construed as unfair, it added.
Moving enforcement away from supervision, would allow an independent undertaking of the key functions of interrogating evidence and assessing whether a breach has been committed.
Under the new three way system the FCA, PRA and enforcement body would ‘enjoy much greater clarity over their objectives’, the committee said.
In terms of the HBOS collapse during the 2008 financial crisis, the report laid significant blame at the door of the FCA’s forerunner the Financial Services Authority (FSA).
It said that while the FSA initially demonstrated a good grasp of the problems that would cause HBOS to fail, over time the quality of supervision ‘deteriorated markedly’.
It damningly noted that the FSA’s decision to assign a lower priority to prudential supervision did not occur by accident, but by design.