I never expected to feel sorry for Martin Wheatley who, last week, resigned his position as Chief Executive of the Financial Conduct Authority, but I do. George Osborne gave him a non-job and Wheatley tried to make the most of it, thereby alienating too many people. The history of this is simple. A few months before the 2010 election, George Osborne, then Shadow Chancellor, announced that he would abolish the Financial Services Authority which had grown massively to 3,500 people, too many of them lawyers, who wasted everyone’s time with “compliance”, achieved nothing and signally failed to anticipate, still less prevent, the 2008 financial crisis. Their defence that this was all outside their control, being US driven, was nonsense. The Canadian financial sector is far closer to Wall Street than London is, and, by traditional banking properly supervised, the Canadians slid by gracefully.
Although Osborne was right to axe the FSA, he, being new to the game, failed to recognise the problem created by not explaining what would follow and how supervision would be maintained. FSA executives did not wait to pass “go” and accepted the lucrative offers coming their way. The City does not like uncertainty and panic ensured.
To bring calm, Osborne then announced that no one should fear for their jobs as he would replace, going one better than Hydra, the FSA with three new quangos: The Prudential Regulation Authority, The Financial Conduct Authority and the Money Advice Service. In addition we had the Financial Ombudsman Service and The Financial Services Compensation Scheme (both established by Gordon Brown in 2001). By the PRA becoming part of the Bank of England, the BoE regained its traditional City supervisory role. The Governor’s June encyclical, the Fair and Effective Markets Review, promotes that wider Bank responsibility.
Wheatley’s problem was that we never needed the FCA in the first place (see “Do we need the FCA?” (May 2015) and “FCA should be 'terminated at birth’, suggests think tank” (October 2012)). The work for which the FCA took credit was largely conducted by consultants who could have been commissioned by any one. The rest of their “make work” could be done, if it is necessary at all, by the Financial Ombudsman Service, which also needs reform, the PRA and the competition authorities roosting in the myriad branches of the Business Interference and Skills department. It would be easier to reform the Financial Ombudsman Service if they had full responsibility for the job they are supposed to do.
Osborne, faced by dealing with the wrong man in the wrong job, has once again made the wrong decision. The FCA should have been axed, not poor Mr Wheatley. The question now is whether HMT has learnt anything from this experience. One fears not.