City regulator attacked as ‘defective’ by own staff

The City regulator is opaque and unaccountable and “widely seen as incompetent”, according to a report due to be revealed in parliament on Tuesday.
A study of views on the Financial Conduct Authority, which includes the opinions of some current and former staff, is due to report claims that the organisation has a “defective culture”, is too close to those it regulates and is “slow to act and even slower to admit it has got things wrong”.
The 359-page report, which is also based on interviews with whistleblowers and victims of financial scandals, includes allegations that errors and inaction are too common at the authority and claims that staff who challenge the “official line” are “bullied, discriminated against or managed out”.
The report from the all-party parliamentary group on investment fraud and fairer financial services said there was a belief from some consumers that the FCA was “culturally and economically aligned with banks and other large authorised firms and hence disinclined to act against their interests”.
A £320 million “transformation programme” at the FCA is being led by Nikhil Rathi, chief executive, following a series of scandals, including its mishandling of the London Capital & Finance Ponzi scheme, which cost about 11,600 investors more than £237 million.
The National Audit Office has said the authority is “carrying out significant work to reshape the organisation”.
However, certain staff told the parliamentary group’s survey that the programme is “not working” and that it is seen by some as “more about reducing costs than protecting the consumer”.
Concerns were also raised by existing and former staff about the quality of some of their colleagues, allegedly poor management and purported resistance to change.
An FCA spokeswoman said: “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 learnt from historic issues and transformed as an organisation so we can deliver for consumers, the market and the wider economy.”
One former staff member quoted in the review claimed the “leadership and organisation culture … has been appalling, especially the culture of inaction perpetuated by the middle management” and that the culture “can be summed up in the phrase, ‘I have done nothing therefore I have done nothing wrong’.”
Another claimed it had the “worst staff culture” she had experienced in a 40-year career.
The review describes an employee as claiming that senior managers are “entirely unresponsive” to serious concerns being raised and “the culture is simply that you are expected not to deviate from the message”.
The parliamentary group’s review is based on views gathered from interviews with 175 respondents. Its secretariat is provided by Transparency Task Force, a consumer group which has previously been highly critical of the regulator’s handling of a series of issues.
In his foreword to the report Bob Blackman, co-chairman of the parliamentary group, said the testimony suggests the FCA “comes across as an opaque and unaccountable organisation, slow to act and even slower to admit it has got things wrong and to change. The individuals who generously shared their experiences with us told tragic tales of regulatory failure causing enormous financial and emotional distress.”
Blackman said current and former employees depict its culture and leadership as “profoundly defective”.
The FCA’s own surveys have found that more than three quarters of regulated firms report a high level of satisfaction with the authority, while 85 per cent of stakeholders such as consumer groups and politicians say the FCA achieves its objective of protecting consumers.
The FCA says its own trust index score from its internal employee survey this year is up by 3 per cent to 64 per cent compared with 2023, and from a low of 48 per cent in 2022. Staff reported widespread satisfaction with the regulator’s work environment and processes, career and development and wellbeing.
On transparency, the FCA noted it has provided oral evidence to parliamentary committees 38 times in the last parliament, more than any other regulator.
The parliamentary group’s report proposes reforms including the development of a “consumer-centric mission statement” against which the organisation is tested and held accountable by a new consumer oversight body.
It also recommended greater restrictions on the “revolving door” of appointments between the regulator and the financial industry.
Rachel Reeves, the chancellor, has ordered the regulator to encourage more risk-taking across the City, raising concerns that the government is in danger of weakening consumer protections.