It is now official, the Financial Services Authority has been recognised as a complete failure in helping to protect the interests of the British financial services consumer.
This not-too-surprising finding has been made by none other than the H.M Treasury Select Committee in a report you can read in its entirety here;
When a committee of M.Ps decides to admit that the lead financial regulator is about as much use to the consumer as the FSA has proved to be, I think we are entitled to sit up and take notice.
When talking about the appointment of John Griffith-Jones as head of the new Financial Conduct Authority, this is what the Committee has to say;
"...He must restore the credibility of the conduct regulator..."
This is about as basic a requirement for a regulator as one might realistically conceive, and the fact that the Treasury Select Committee felt it necessary to spell out this requirement in such a degree of granularity, identifies just how far down the value chain the work of the FSA had sunk. This statement proves that the FSA had managed to lose all its credibility, and in so doing, exposed the consumer to every depredation that the financial sector was capable of foisting on them. It means that the sector it was supposed to regulate merely despised them, ignored them, went round them, and generally held them to be of no account, the truth is, they were not frightened of them, and that is the trouble.
The Select Committee's findings are scathing in their denunciation. Remember, this is a Government committee and it is talking about an agency over which it held a supervisory role. Normally, such committees tend to pull their punches and water-down their criticisms, but not this time! The Summary of the report continues;
"...The FCA is the successor to a body which failed consumers. Although it devoted a great deal of time and effort to conduct matters, it left consumers exposed to some of the worst scandals in UK financial history..."
Well, there you have it, the FSA failed consumers. How - was it negligence, recklessness, or was it what I have long suspected, that it was so far up itself, with its coterie of economic theoreticians and academics and Big 4 consultants? I once conducted an interview with a former FSA staffer who described the stultifying atmosphere inside the organisation, being run on the worst examples of civil service lines. She talked about the employee attrition rate and the enormous turn-over in staff, many of whom left after a short time in post because of the sheer pettiness and inter-departmental squabbling. She told me about new employees who came into the organisation with absolutely no experience of financial matters, but who were put out to conduct financial reviews at major banks within a matter of a few weeks of arrival.
I have observed with my own eyes, and I have blogged on the sheer mind-boggling incompetence of so many of the financial crime investigations which have been undertaken by the financial crime staff. I have written on the lunacy of leaving such complex cases to staff who have no previous knowledge or experience or obvious skill in dealing with professional criminals, and I include in this group, those who possess highly-attuned criminogenic characteristics.
I have previously commented upon the dangers of employing people who possess civil or commercial legal qualifications in positions where they will be required to deal with criminals, and I have lamented the absence of anyone in the senior decision-making process with former financial detective skills or experience. They may employ some former police officers for all I know, but I never seem to see their identifications in the investigative process. All too often, the people who do get employed come from the same, predictable kind of background, safe pairs of hands, 'one of us', never going to rock the boat!
As an aside, it amuses me no end to read all the articles that are now being published about the need to employ skilled compliance officers who can 'pro-actively' police the financial market, having the ability to predict the areas of wrong-doing that are most likely to be the preferred area of operation for the financial criminals, spivs and wideboys.
Regular readers of this blog will know that I have been calling for this facility for a very long time, but my views and my advice have been repeatedly derided, and attacked. Suddenly, all these ideas are now flavour of the month. Will anyone be willing to finally employ me, do you think?
Turning back to the Select Committee's criticisms, it states unequivocally, "... it left consumers exposed to some of the worst scandals in UK financial history..."
I am still finding it hard to get used to this uncompromising language! It is so unusual for a Select Committee to speak in these terms, it must have been deeply angered by the failures which it saw.
We have lived through an era of financial criminality almost without precedent.
It is not as if financial crime in the City was hitherto unknown, far from it. The con-man and the crooked banker have been associated with the City from time immemorial. The South Sea Bubble of 1720 was only a dot on the criminal timeline. I often show my students a slide which reads;
"...Go where you will, in business parts, or meet who you like of businessmen, it is - and has been for the last three years - the same story and the same lament. Dishonesty, untruth, and what may, in plain English, be termed mercantile swindling within the limits of the law, exists on all sides and on every quarter…"
It is a wonderful quotation and it comes from a publication called "...Temple Bar Magazine...", of 1866, although it could so easily have been used today!
However, what we have experienced in the last few years on the watch of the Fantastically Supine Apologists, dwarfs other financial criminality beyond peradventure.
The level of downright criminal fraud associated with the PPI scandals alone is deeply shocking, yet the FSA did nothing about bringing anyone to book for this orgy of criminal dishonesty and deception. How they can have sat back and allowed this exercise in criminal cheating (now said to probably reach in excess of £30 billion) to continue unpunished is simply beyond my comprehension, When questioned about it in front of the Commission on Banking, Hector Sants, that paragon of investigative zeal said words to the effect that; "...well we asked them to stop, but they just ignored us. They used their lawyers to fight us, and they wouldn't listen to us..."
Of course they did, you damn fool, they were making too much money out of PPI to stop the gravy train, just because you said so! They weren't frightened of you, and they knew you wouldn't do anything, and they just carried on laughing at you.
The scandal with the LIBOR manipulations is simply breathtaking. It was an open season for the spivs and wideboys in the banks, to manipulate and fiddle the system for their own benefit. It went on for some years, but when the chips were down, no-one in the top jobs in the banks, UBS is a classic example, knew anything about it. In front of the Banking Commission, UBS executives said, with a straight face, that the first time they heard about the LIBOR excesses was when they read it in the newspapers.
Hello, excuse me, reality interlude time, please! When questioned by the Banking Commission, super sleuth Tracy MacDermott opined that the investigative trail had petered out before it reached the Executive level, so they didn't ever question the UBS Executives about what they might have known about the LIBOR activities.
It wasn't that she didn't have the powers to do so, it wasn't because she already knew the answers, but, as she explained, they only interviewed those who were directly involved. Ms McDermott, with her little trademark giggle, maintained that there was '...no value in talking to people who can't help you...' that the people being interviewed hadn't, as expected, sought to turn the responsibility on to those above them...' so the trail of evidence petered out. Adopting a very pious tone, Ms MacDermott lectured the Commission saying that they '...have to go where the line of enquiry takes them...'
God help us! Here she and her team were, with the opportunity to go and screw down three of the world's major bankers about the activities of their bank in one of the biggest financial scandals in history, and they just couldn't be bothered to find a reason so to do. They could have given these bastards the biggest grilling of their collective protected lives, they could have terrified the living daylights out of them and probably got some serious information from them.
Instead, they just couldn't be bothered. Was this negligence, or possibly even a reckless degree of connivance? No, sadly it was neither of these, it was just basic ignorance, of the powers that the Courts will permit to an investigator when serious criminal wrong-doing is suspected. It was ignorance of their functions as investigators, and ignorance of the methods and techniques that any experienced detective would have used to achieve his ends. And that is the biggest sadness of all!
What other gems did the Select Committee choose to lay at the feet of the FSA?
The Committee accuses it of "...creating a 'box-ticking' culture whose benefits were far from evident and which still failed to pick up major failures in the making..."
This supine box-ticking mentality was widely known in the banking industry, and their entire compliance programme was aimed at meeting the needs of the FSA box tickers, while ignoring the wider responsibilities of their role.
Box ticking is easy, it is a cowardly way of operating because it avoids confrontation, and it is the bully's way of operating. I have spoken to many compliance officers who said that they knew it was no use seeking to discuss matters with their FSA inspectors, because they were not interested in any answer, other than that which ticked the box. You didn't tick the box, you were guilty. So, they stopped engaging and just provided the box tickers with boxes to tick.
This isn't how to regulate, but it's how you do it when too many of your staff are unskilled or inexperienced, or have no knowledge of how to deal with the wiseguys!
Finally, and I think, most crucially of all, the Select Committee is highly critical of the FSA Board, of whom it states;
"...The board of the FSA also appeared to fail in its oversight of the work of the Authority. (John Griffith-Jones) and his new board colleagues will need to demonstrate stronger strategic leadership than their FSA predecessors..."
The FSA Board is made up, as you would expect, of the usual collection of the Great and the Good. Nothing wrong in that you may well say, typical British tradition of staffing Boards with good chaps (of both sexes), safe pairs of hands, people who you only just have to look at their cv's and know "...yes, these people are 'one of us' ..."
That's fine, and under most normal circumstances, it wouldn't really matter very much. These people will give you the value of their academic experience, and there can be no doubt that you need their financial expertise, no doubt there will be plenty of it.
But that's the problem. These kind of people are fine when it comes to running an organisation that is providing leadership for the kind of people who are pre-ordained to be good, honest and upright citizens; who will not play fast and loose with the rules, and can be guaranteed to comply with the regulations they operate under.
Such a Board exists to lend tone and gravitas to the Authority's deliberations, to provide the odd White Paper or Thought Leadership publication; perhaps stimulate a little debate at a nice evening cocktail party to which a few tame MP's and a visiting Euro bureaucrat are invited; possibly be a lead speaker at some grand conference, or give a learned paper at one of our leading universities.
But ask them, just once, to come up with some practical experience and advice and a cohesive action plan on how to deal with a financial institution like Barclays Wealth, where, as we were told only this week-end;
"...The current leadership team have pursued a course of “revenue at all costs”, taken a conscious decision to ignore support functions, reinforced a culture that is high risk and actively hostile to compliance, and ruled with an iron fist to remove any intervention from those who speak up in opposition..."
Ask them to suggest a strategy for dealing with the people who created this atmosphere of anomie; ask them to suggest an action plan for taking down the architects of this dysfunctional organisation, but in a manner whereby any evidence you might want to retain to show a judge later, can be collated and retained in an uncontaminated manner so as not to render it inadmissible; how to undertake these actions in such a way that the individuals concerned don't go shrieking off to lawyers, demanding injunctions; and how to find the evidence to demonstrate that they are not fit and proper persons to be having the control of a regulated public company, and you will be barking up a blind alley!
The Board failed in its oversight of the FSA's conduct because they had no-one on the Board who had the first clue how to deal with the bunch of slick, amoral, greedy, dysfunctional, criminogenic, Masters of the Universe/Big Swinging Dicks who control the power functions inside our banking sector. I cannot help but wonder whether the Board members have already tendered their collective resignations in the light of these words.
We cannot be criticised now for saying these things because they, and much worse are out in the public domain. Senior executives have been forced to resign because of their dishonourable actions, and the truth is out, the genie is out of the bottle.
That is why the Select Committee has chosen its words carefully, the new Board must provide 'strategic leadership', they need someone to be able to demonstrate strategy thinking, to be able to figure pro-actively, to have an action-plan in the event that another of these financial dinosaurs decides to run off at the groin in the future.
I cannot impress just how serious these criticisms are of a public body, which up until last week apparently enjoyed the full confidence of Government. They are scathing in their scope, and they are reputationally damaging in the extreme.
Finally, The worst thing is that virtually all of the disgraced employees of the FSA will be re-housed and re-employed in the new Financial Conduct Authority. Tracy MacDermott is already the putative Director of Enforcement in the new Agency, and no doubt many of her team will go with her!