George Osborne is coming under pressure to revive a key review of banking culture after it emerged the UK’s financial watchdog had dropped its examination, in a sign that the “assault” on banks is waning.
The Financial Conduct Authority has ditched its probe into the culture of retail and wholesale banks operating in the UK only months after it launched, based on the view each business is unique and therefore cannot easily be compared, the Financial Times revealed yesterday.
The move to stop the review, which was originally unveiled by the watchdog early in 2015, bows to the threat that HSBC could relocate its headquarters overseas, some investors claim.
But politicians are calling for the chancellor to exert his power to resurrect the banking culture probe.
John McDonnell, Labour’s shadow chancellor, said the decision by the FCA “will be a huge blow” to customers and taxpayers who are “still paying the price for the failed culture in the banking sector” in causing a string of scandals and spurring the financial crisis.
He said: “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.”
He added that scrapping the review “sends the wrong message at the wrong time,” and said he is concerned that the watchdog’s decision to instead engage with banks individually is a “potentially watered down version”.
Conservative MP Mark Garnier described the FCA’s decision as “disappointing”.
“I agree every single bank has a different way of remunerating staff, but the problem is that it’s useful when you have an across-the-piece review to see what appears to be best practice,” he said.
Bank culture has come under the spotlight since the financial crisis, for giving rise to foreign exchange and Libor rate-rigging scandals that have led to multibillion pound fines.
Consumers have also lost out to widespread misconduct by banks. The mis-selling of payment protection insurance alone has forced the banks to set aside more than £26bn.
Richard Lloyds, chief director of consumer group Which? warned that the FCA “must not take their eye of the ball” and that it should continue to “clean up the industry”.
Investors believe the FCA’s move to ditch the assessment is the latest sign that “banker bashing” is coming to an end and reflects a thawing of government relations with lenders.
Richard Buxton, chief executive of fund group Old Mutual Global Investors, said: “The mood music towards banks is becoming more positive. 2015 was also the year we turned a corner on clarity over regulatory demands on bank capital levels.”
Percival Stanion, a fund manager at Pictet Asset Management, said it is “not a surprise” the regulator is backing off from the “assault on the banking sector”.
“Clearly the industry has been doing a lot of lobbying to get the temperature turned down,” he said. “The consideration by HSBC of where its headquarters will be located must be a factor that has been an influence.”
HSBC is undergoing a review of its domicile location, which is expected to complete early next year, with the US and Hong Kong as potential alternative bases to the UK. The bank has come under pressure from the UK’s bank levy, which Mr Osborne opted to scale back in his 2015 summer budget.
Mr Stanion said it would be “a major loss to London” if HSBC were to move overseas. “The departure of such a large institution with such a long association with Britain would be a blow, and would have employment and tax revenue implications,” he added.