Osborne accused after review into banking culture is ditched

The Chancellor of the Exchequer, George Osborne.  Photo : PA Wire

The Chancellor of the Exchequer, George Osborne. Photo : PA Wire

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GEORGE OSBORNE has been accused of forcing regulators to ditch a review into Britain’s banking culture under pressure from the industry’s biggest names.

The Chancellor is “bowing” to demands to drop the so-called “banker bashing” probe set up after the Libor rate-rigging scandal, it was claimed by an MP.

Watchdog the Financial Conduct Authority (FCA) has announced it will instead “engage individually with firms to encourage their delivery of cultural change”.

The decision comes after FCA chief executive Martin Wheatley announced in July his decision to quit the post as Mr Osborne refused to renew his contract, which was due to end in March next year. MPs suggested the Chancellor was behind the decision to drop the review months after it was set up.

Labour’s John Mann, who sits on the Treasury select committee, said: “George Osborne is behind it, without any question. The cultural issues are what lays at the heart of the financial crisis. It’s fundamental. Individuals took irrational risks with other people’s money. This decision leaves us hugely exposed into the future because it allows the banks to continue to act as they acted before.” The Bassetlaw MP added: “George Osborne is bowing to pressure from the banks. HSBC and Barclays have threatened to leave the country, that is what they are privately threatening.”

Conservative Mark Garnier, who also sits on the committee, said he was “disappointed” by the decision. He said: “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.”

A number of banks have already signalled that changes are being made to their operations.

In November, Standard Chartered said it would cut around 15,000 jobs worldwide as part of a major overhaul, although it has not disclosed how many of its 2,000 UK-based staff would be made redundant. But the bank said it had no plans to move its headquarters from the UK.

In contrast, HSBC said it was investigating whether to close its UK HQ in the City. The Government’s attitude to financial services companies is among the factors involved in deciding whether to remain in London, said the banking giant. A decision is expected in the new year. Earlier this year, the FCA told banks to sharpen up their efforts to learn lessons from scandals such as foreign exchange and Libor rate-rigging, which have already cost them billions of pounds in fines.

The body said companies’ progress in making improvements as part of the review - designed to examine and compare behaviour within the banking sector, including staff pay and complaints procedures - was initially disappointing and improvements “had been uneven” across the industry. But it also said “some progress had been made on improving oversight and controls and benchmarks” following the scandals involving the benchmark rates in Libor - the interbank lending rate.

The FCA said: “A focus on the culture in financial services firms remains a priority for the FCA. There is currently extensive ongoing work in this area within firms and externally. We have decided 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.”

Shadow chancellor John McDonnell warned that the move could prove a “dangerous and costly mistake”.

He 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.

“But what is also worrying is that they are ditching this review and replacing it with a potentially watered down version despite the obvious fact that we haven’t got to the bottom of cultural mispractice and when, as far as we know, there is still a problem. As a result this could potentially prove to be a dangerous and costly mistake in years from now.

“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.”

Liberal Democrat leader Tim Farron said any hope of change had been “dashed”.

“The public are rightly fed up with the banking sector marking its own homework and cutting out anyone with a critical eye. Any hope of change and progress has been dashed, with a very clear return to businesses as usual,” he said.

“Cosy decisions between the banks and politicians, and a toothless regulator, lead us to one of the biggest financial crashes in living memory. The high-risk players in the banks were left to gamble with public money, with little care for what may happen.

“When the banking sector faces trouble, British livelihoods are on the line. To do anything other than operate with complete transparency, and with proper checks and balances, will be reckless and will undermine public trust.”

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