Damning FCA report ‘risks undermining’ London as a financial centre

Criticism of the Financial Conduct Authority (FCA) is continuing to mount as a group of parliamentarians prepares to lay out a stinging report claiming the watchdog is “defective” and “incompetent”.

In a more than 350-page report compiled over three years, set to be presented to parliament, the All-Party Parliamentary Group on Investment Fraud and Fairer Financial Services will label the FCA an “opaque and unaccountable organisation” that is “slow to act and even slower to admit it has got things wrong and to change”. 

Compiled through testimony from 175 whistleblowers, former employees and its own staff, the reports paints a damning picture of the regulator and suggests its oversight has been hamstrung by an overly cosy relationship with the firms it is tasked with regulating.

Former staff and current employees have also criticised the regulator’s internal culture, with some alleging a culture of “bullying” in which staff are punished for airing concerns and challenging processes.

Among the parliamentarians in the 39-strong cross-party group are former Conservative City minister, John Glen, Jeremy Corbyn’s shadow chancellor, John McDonell, and the ex-chair of the Competition and Markets Authority, Lord Andrew Tyrie.

City lawyers said today the report would add to questions over the performance of the regulator and risked damaging the reputation of London as a financial centre.

“The recent report labelling the FCA as ‘incompetent’ and its culture as ‘profoundly defective’ is not a good look for the UK and risks further undermining London’s position as a financial centre,” said Charles Kuhn, partner and financial crime specialist at global law firm Clyde & Co.

“Businesses deciding whether to set up or stay here are likely to factor in a regulator struggling with leadership and operational issues in their choices.”

The report will mark the latest broadside from Westminster toward the FCA after a fractious 12 months in which City firms and parliamentarians have criticised the approach of chief executive, Nikhil Rathi.

After the FCA revealed unexpected plans to ‘name and shame’ the firms it is investigating earlier this year, City firms mounted a coordinated backlash against the proposals. The FCA revealed earlier this month it would soften its plans.

FCA report ‘deeply disappointing’

Emma Bartlett, a partner at law firm CM Murray, said the findings of the latest report were “deeply disappointing” and would erode confidence in the FCA’s attempts to clampdown on areas like non-financial misconduct.

“In order to instil confidence in the firms which it guides on developing a speak up culture and the correct processes to identify non financial misconduct […] a positive and active response from the FCA should follow,” she added.

Dr Francesc Rodriguez Tous, a senior lecturer in Banking at Bayes Business School, added it was “undoubtedly concerning” that the regulator seemed to “adapt slowly to a rapidly changing financial services landscape”.

The FCA rejected the characterisation of the report yesterday, saying in a statement: “We sympathise with those who have lost out as a result of wrongdoing in financial services, however we strongly reject the characterisation of the organisation.  

“We have learned from historic issues and transformed as an organisation so we can deliver for consumers, the market and the wider economy.” 

According to its own internal surveys, staff satisfaction has been on the up in recent years. Its two main measurements for 2024 – a Trust Index and measure of engagement – both rose by three per cent to 64 per cent and 68 per cent, respectively.

The FCA also appeared in front of MPs more than any other regulator during the last parliament, speaking 38 times in front of committees and offering written evidence 41 times.