The Treasury has defended the City regulator’s decision to ditch a review into banking culture as the chancellor came under pressure to revive the scrapped study.
John McDonnell, the shadow chancellor, urged George Osborne to exert his influence and reinstate the review, which the Financial Conduct Authoritydropped just months after it was launched.
MPs said the move would be regarded as a softening of policymakers’ stance towards bankers.
McDonnell said: “This will be a huge blow to customers and taxpayers who are all still paying the price for the failed culture in the banking sector that’s been widely attributed to be among the main causes of the crash and the scandals over Libor and price-fixing.” He said the FCA was making a “dangerous and costly mistake”.
“The chancellor therefore cannot stay silent on this issue. It’s time he used his influence to keep this review going. Otherwise he’s letting down the rest of us who bailed the banks out and also allowing a signal to be sent to carry on regardless. Given the scale and severity of the failings in the financial sector and the criminal behaviour shown by some banks, the scrapping of the FCA’s review into banking culture sends the wrong message at the wrong time,” he said.
The review was included in the FCA’s business plan for 2015, but was dropped after an initial assessment found it difficult to compare different cultures inside banks.
The decision to abandon the review follows the resignation of the FCA chief executive, Martin Wheatley, after the chancellor forced him out in July. A permanent replacement has not been named to take over from Wheatley, who had flagged his tough stance towards the industry by warning he would shoot first and ask questions later.
He added: “FCA surrender to big banks today is entirely from pressure from Treasury and Osborne.”
Mark Garnier, a Conservative MP on the committee, told BBC Radio 4’s Today programme: “There has always been this great argument that perhaps the Treasury is having more influence over the regulator than perhaps it ought to and certainly, if I was looking for a Machiavellian plot behind what’s happened here and the tone of the regulator, then I suppose I would start looking at the Treasury.”
The FCA insisted the Treasury had played no part in ending the review. “Having undertaken an initial piece of scoping work, we decided that a traditional thematic review would not help us achieve our desired outcomes and we would therefore take forward our work on culture through other routes. This was an FCA decision. [The Treasury] were not involved,” it said.
The Treasury denied involvement and said it was not backtracking on banking reform after making changes to the way senior bankers are held to account and altering the tax regime to pacify HSBC, which is reviewing whether or not to keep its headquarters in the UK.
Greg Hands, the chief secretary to the Treasury, said: “Ministers had no involvement in, and indeed no advance notice of, this decision by the independent regulator. To suggest otherwise is utterly false. For Labour, whose system led to the banking crisis and the great recession that caused such misery to millions of families, to complain now about regulation is risible.”
A Treasury spokesperson added: “The government has been absolutely clear that the integrity of the City matters to the economy of Britain, which is why we have taken action to improve conduct across the banking sector and deal with the abuses and unacceptable behaviour of the past.
“The independent FCA is responsible for ensuring that the top management of banks instil the right culture and standards of conduct in their institutions. This decision by the independent FCA reflects its view that the best way of doing this is for it to support individual firms bring about change within their organisations. The government was not involved in this decision, to suggest otherwise is wrong.”
Consumer bodies were also concerned, after a string of scandals including the payment protection insurance mis-selling fiasco. Richard Lloyd, the executive director of Which? said: “It’s disappointing that the regulator has decided against publishing this report on the culture of banking. Cultural change doesn’t happen overnight, so despite signs of improvement, the FCA must not take their eye off the ball and should continue to clean up the industry.”
The FCA said it was still focused on culture in financial services firms. “There is currently extensive ongoing work in this area within firms and externally. We have decided that the best way to support these efforts is to engage individually with firms to encourage their delivery of cultural change as well as supporting the other initiatives outside the FCA.”
The Banking Standards Board, established in the wake of the Libor-rigging scandal, has sent banks their first annual report cards, but it is not clear if the banks will publish the findings.