The Financial Conduct Authority has always seemed like the poor relation. When, in a fit of scapegoating, the UK government split the Financial Services Authority into two entities, the Prudential Regulatory Authority and the Financial Conduct Authority, the PRA took most of the glamour.
It was all about managing and reining in risk at the largest, most complex financial institutions, while the FCA had a ragbag of responsibilities from the behaviour of mortgage brokers to the advertising of fund managers to the approval of investment bank board members. Bucket shops and bulge bracket firms alike came under its remit.
Since then, it has pushed hard to define a role for itself. The Libor and FX manipulation scandals were large, glitzy enforcement projects with big payoffs and high public profile, while the FCA has taken on competition powers, which it is using to drive the regulatory perimeter further into the hitherto lightly regulated relationships between investment banks and their corporate clients.
UK chancellor George Osborne may have just pushed out FCA chief executive Martin Wheatley, but the organisation he has run since its foundation keeps on growing.
From 2018, it plans to move to a new building in the Olympic Park with 11% more space than the old FSA building at 25 North Colonnade in Canary Wharf that it occupies now — and bear in mind all of the FSA’s prudential staff relocated to the PRA building at 25 Moorgate when the FSA was split up.
But it should have less work to do than ever before.
The UK’s new Senior Managers Regime is a profound shift in regulatory philosophy which makes senior staff directly accountable for the actions of their staff. They have positive obligations to report poor behaviour, and real personal consequences if they do not. Market abuse, staff behaviour, and the fair and effective conduct of trading business is now an obligation of firm management, backed by regulatory powers.
So far it only applies to banks, but it is intended to be rolled out to brokers and asset managers, while insurers will have their own regime.
At the same time, most of the regulation the FCA has to implement is European in nature and scope, and is more prescriptive than ever before. The European Union is now choosing to use regulations, which allow no national discretion, rather than directives, which do.
European super-regulators — the European Banking Authority, European Securities and Markets Authority and the European Insurance and Occupational Pensions Authority — also have more power than ever before. They are not simply committees of national regulators, as were their predecessor organisations, but independent bodies with a reporting line to the European Commission, not national governments.
So conduct regulation has been devolved down to the staff of firms, while policy making has been passed off to the European level.
Where the UK has struck out on its own — such as with its plan to ring-fence retail banks, or claw back compensation, or with the Fair and Effective Markets Review — these initiatives have been led by the prudential regulator, the PRA, with the FCA on board as junior partner.
Clearly the FCA cannot disappear entirely. Conduct regulation needs to happen — even if it is mostly outsourced to the management of institutions, without the stiffening resolve of a regulator behind it, and occasional example making the project will fail.
And it makes useful contributions to European and international regulation, feeding the UK’s experience of hosting international financial markets into broader decision making.
But it’s hard to see how the FCA justifies an ever expanding staff with an ever expanding remit.
When the time comes to appoint a new FCA boss, perhaps it should be looking for someone that can tame the beast.