Introduction

A new report by the All-Party Parliamentary Group (“APPG”) on Investment Fraud and Fairer Financial Services exposed serious concerns regarding the Financial Conduct Authority’s (“FCA”) performance. Drawing from 175 testimonies submitted through a “Call for Evidence,” this report explores the regulator’s effectiveness, culture, and accountability. Contributors included victims of financial misconduct, whistleblowers, SMEs, and even current and former FCA employees.

The APPG’s stated purpose was “to improve our understanding of how the FCA is perceived” and propose solutions for systemic issues. Tailored question sets were developed to gather evidence from various stakeholder groups, allowing for a detailed analysis of their experiences with the FCA. The report provides a comprehensive qualitative examination of the regulator’s operations, which the APPG believes is “the most detailed and extensive” study of its kind.

Findings

The report identifies several areas where the FCA has faced criticism based on the testimony received. Key themes include:

Widespread Incompetence: According to the APPG, respondents consistently viewed the FCA as failing to deliver on its core mandate of consumer protection. Testimony suggested that the FCA is often “slow to spot fraud and other misconduct,” with one contributor labelling the regulator as “completely ineffective.” Another respondent described their experience as “a nightmare, a waste of time, and a complete denial by them of any wrongdoing.”

Lack of Integrity and Accountability: Many testimonies questioned the FCA’s transparency and fairness. The report noted that respondents alleged the FCA acted “in bad faith” in certain cases, with some whistleblowers stating they were “actively harmed” for raising concerns.

Transparency and Accountability Deficiencies: The APPG concluded that efforts to hold the FCA accountable are “routinely thwarted.” Respondents reported that the regulator operates with an “opaque culture,” described as being “untouchable” and resistant to scrutiny.

Whistleblower Failures: Testimonies from whistleblowers indicated a “consistent pattern” of failures, with the FCA accused of failing to adequately investigate whistleblower-provided intelligence. One respondent claimed the regulator’s inaction on credible reports amounted to a “betrayal” of trust.

Defective Organisational Culture: Testimonies from FCA employees portrayed a “top-down” culture that discourages dissent and prioritises protecting the organisation’s reputation over reform. Contributors described the leadership as “lacking accountability,” with concerns that the revolving door between the FCA and financial institutions creates “serious conflicts of interest.”

Transformation Programme Concerns: The APPG observed near-unanimous scepticism about the FCA’s Transformation Programme. One respondent described it as “a whitewash,” while others doubted its sincerity or ability to address the structural issues identified.

Recommendations

The APPG offered a wide range of recommendations to address the issues raised in the report. These are summarised below:

Internal Reforms:

  • Introduce a consumer-centric mission statement to guide the FCA’s operations, with external oversight to ensure accountability.
  • Implement a no-tolerance policy for integrity breaches, ensuring greater transparency and fairness in decision-making.
  • Develop a specialist consumer support department to assist victims of financial fraud effectively.

 

Legislative Reforms:

  • Establish a Financial Regulators’ Supervisory Council to oversee the FCA and other financial regulators, ensuring periodic effectiveness reviews.
  • Remove the FCA’s immunity from civil liability, enabling consumers to pursue legal action for regulatory failings.
  • Introduce a statutory Duty of Care, legally obliging financial firms to act in the best interests of their customers.
  • Reform the FCA’s funding structure to address potential conflicts of interest.

 

Structural Changes:

  • Address the revolving door problem by restricting senior FCA staff from moving to financial firms immediately after leaving the regulator.
  • Overhaul the FCA’s governance processes to include greater parliamentary oversight, particularly for senior appointments.
  • Consider whether the FCA’s remit should be streamlined to focus solely on consumer protection, with competition and growth objectives reassigned elsewhere.

 

Further Investigation:

  • Conduct a Royal Commission to assess the FCA’s structure and operations if other reforms fail to achieve meaningful change.

What Happens Next?

The APPG has called on the government and FCA leadership to act urgently on these recommendations. It has also suggested establishing regular, independent reviews to monitor progress. While the FCA has highlighted its Transformation Programme as evidence of its commitment to improvement, the APPG report suggests stakeholders remain unconvinced.

The FCA’s response to this report, alongside parliamentary and public scrutiny, will likely shape the regulator’s trajectory. If action is not taken, the APPG warns of “further deterioration in trust in the financial sector and its regulation.”

Closing Thoughts

The APPG report raises significant questions about the FCA’s ability to fulfil its mission of consumer protection and market integrity. With its findings drawing from a broad spectrum of voices, this report is a critical resource for policymakers, industry leaders, and consumers seeking a fairer financial system.
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