Patrick Hosking of The Times has written another excellent article considering he is constrained by a band of corporate lawyers who no doubt are terrified of legal action by certain corrupt individuals in our banking sector. However, we applaud Patrick’s attempts to shine a bright light into the cesspit of British Financial affairs and The Times determination to expose the FCA for what it has become- the F’ing C…..A…..we’ll leave you to fill in the rest.
It is too easy to swap sides between the regulator and the financial industry
A career move by a mid-ranking accountant wouldn’t normally attract much attention, but to a few, bruised small business people, there was something strangely familiar about the name of David de Souza, who joined Royal Bank of Scotland eight months ago as manager in its corporate governance and regulatory affairs department.
Mr de Souza previously had been the liaison man at the Financial Conduct Authority, overseeing the compensation scheme set up to enforce £2 billion of redress to up to 20,000 victims of the swaps mis-selling scandal. One of the biggest offenders was RBS and it was Mr de Souza who dealt with allegations of abuse levelled at that bank.
It’s the kind of gamekeeper-turned-poacher job switch, revealed last week by my colleague James Hurley, that raises hackles. The SME Alliance, a group representing some of the victims, described the move as “a spin too far of the revolving door . . . We are shocked that someone who has access to so much sensitive information passed to the FCA has been hired by the organisation that much of the material concerns.”
There is no suggestion of wrongdoing by Mr de Souza. Safeguards were put in place, the FCA says, and he was placed on three months’ gardening leave before joining the bank. RBS claims that his role involves “extremely limited” interaction with the FCA (though that doesn’t entirely square with his Linkedin page, in which he says his team’s primary role is to manage engagement with the FCA, Prudential Regulation Authority and the Bank of England).
Whatever the truth of the matter, it looks terrible that anyone playing honest broker in one of the most egregious mis-selling scandals of recent years, one that led to small firms failing, is three months later on the payroll of one of the perpetrators.
Mr de Souza is, of course, a relatively junior figure in the steady stream of FCA people moving to City jobs. His ultimate boss, Sir Howard Davies, the RBS chairman, was once chief executive of the Financial Services Authority, forerunner to the FCA. Sir Hector Sants, another FSA chief, moved to Barclays. Tracey McDermott, an acting FCA chief, went to Standard Chartered. John Tiner, head of the old FSA, is audit committee chief on the Credit Suisse board. Other notable defections include Margaret Cole, head of enforcement at the FCA, who is now chief risk officer at PWC; Clive Adamson, head of supervision at the FCA, who is now chairman of JP Morgan International Bank; and Christina Sinclair, acting head of retail at FCA, who went on to Barclays and now Commonwealth Bank.
There is a perfectly respectable case for regulators moving to banks. They can help to reinforce the cause of good compliance and treating customers fairly. As one former regulator told me: “You’ve drunk the Kool-Aid. You’re inculcated with the FCA way of doing things. You help promulgate that in the private sector. And you are listened to, too. It’s a good thing.”
The concern that ex-regulators know the weaknesses in FCA systems and are hired to help their new employers to find escape hatches and exploit loopholes is baloney, according to someone who has gone over fence. Even if you were so inclined — and most are not — get it wrong just once and your credibility would be shot to pieces forever. There’s also a strong case for movement in the other direction. Regulators need people who have worked in dealing rooms, IT departments, risk units and product-design divisions of financial services companies if they are to have a hope of understanding the complexity and culture of the entities they are supposed to be supervising.
Yet there are good reasons for caution. Justice needs to be seen to be done and the sight of regulators heading for the big bucks of private sector jobs can seriously undermine reputation. It’s not hard to imagine a senior regulator in their forties or fifties going a bit soft in the hope of landing a plum private sector role in the autumn of their career.
Some critics also see a danger that the FCA becomes a finishing school for ambitious lawyers and MBAs in their twenties wanting a job-smashing flourish on their CVs before entering the golden gates of a City career. Everyone in the gossipy world of regulation seems to know someone who cynically took an FCA job purely as a springboard or stepping stone. There is a brain drain from the FCA.
Perhaps the greatest danger of too much mingling, cross-pollination and fence-jumping is that people come to see moral equivalance to the two sides, with nothing to divide them except the interpretation of process. After the umpteen banking scandals of the past 15 years, that’s too generous a starting assumption. Regulators need to understand that they are in an adversarial position to the finance industry and that on occasions they will need to rebuke, punish and prosecute. A modicum of seemly distance is needed.
We learnt that lesson with the accounting profession. The independent review by Sir John Kingman has rightly recommended the abolition of the haplessly misgoverned Financial Reporting Council, until recently seen as little better than a retirement home for senior Big Four beancounters with very understanding natures. That was the revolving door in reverse.
Making it a bit harder for regulators to jump ship to the private sector would be no bad thing. Clauses could be written into FCA employment contracts giving it a veto on employees moving to employers they once supervised. Alternatively, the FCA could simply decline to authorise people moving into a senior bank role if it was seen to compromise its good standing.
At the very least, the FCA board needs to take a sober look at the problem and to consider tightening the rules. For a start, it’s surely perverse that it is the FCA rather than the poaching new employer that pays the cost of the gardening leave? We need more grit in the revolving door.
Patrick Hosking is Financial Editor of The Times