The Financial Conduct Authority (FCA), Britain’s regulator of the financial services industry, says banks must be impartial in how they handle the rollout of the government’s bailout loan scheme.
Chris Woolard, interim chief executive of the FCA, has written to the chief executives of the banks reminding them of their responsibility to ensure lending decisions remain fair.
Woolard says coronavirus is the first test of the post-2008 safeguards governing senior managers’ conduct. Under those rules, introduced four years ago in response to the global banking crisis, individuals can be held accountable for their conduct toward customers.
More specifically, the statute holds executives responsible for failings on their watch, leaving them liable for a fine or ban unless they can show they took adequate steps to prevent wrongdoing.
The regime has sparked fear across the banking industry, with the FCA itself predicting that it will take more enforcement action against individuals as a result of the new rules.
However, the FCA has so far taken little action under the regime and Woolard admits that his ability to take action over lenders’ behaviour remains limited.
Old concerns raised
Last week, MPs raised concerns that banks might seek to profit from the forced refinancing and collapse of small businesses hit by the coronavirus lockdown.
MPs on the Treasury select committee have also sought assurances from regulators that banks were not putting their own financial interests ahead of those of their customers.
Steve Baker, the prominent Tory backbencher, raised the scandal of the RBS unit when he questioned whether banks had sufficiently changed their corporate cultures and staff incentive schemes since the financial crisis, noting “many of us will remember GRG”.
NatWest and RBS’s Global Restructuring Group (GRG), was a business support unit for troubled businesses set up in the early nineties.
Under threat of foreclosure of loans, the banks seized control of customer assets cheaply from businesses they claimed were failing even though often they had not defaulted on any loan repayments.
Bank managers were able to increase their bonuses by identifying business customers who could be squeezed in what the bank itself called in a 2008 email: “Project: Dash for Cash”.
A pledge to prevent misconducts of the past
Mr Woolard stressed that bank culture had been a priority in the regulator’s work for some years. He said the FCA would do all within its current powers to prevent any repeat of past business banking scandals.
“One thing I have said, both inside and outside the FCA, is that I am utterly determined not to see the kind of misconduct we have seen in the past — not just GRG but in other treatment of small firms.”
the chief regulator noted: “There is a real recognition that the current crisis is a chance to get things right, compared to the past.”