The City watchdog is scrapping performance-related pay and bonuses for senior executives, and also plans to impose salary cuts, as it faces criticism over its handling of the London Capital & Finance (LC&F) investment scandal.
After an outcry about the Financial Conduct Authority’s failure to properly police the collapsed firm, the regulator’s chair, Charles Randell, told MPs that there would be a crackdown on remuneration. He said: “We decided that the consequences that flow from this should be collective. It was clearly the case that the FCA wasn’t sufficiently joined up across its various activities.”
In December an independent inquiry delivered a damning verdict on the FCA’s role in the LC&F failure and said responsibility for some key failings rested with its executive committee and former chief executive Andrew Bailey, now governor of the Bank of England.
Giving evidence to MPs on the Treasury select committee on Monday, Randell apologised for the mistakes that were made and said the board had to consider consequences for FCA staff.
He said that was why the board had cancelled bonuses for the executive committee for 2019-20, and added: “For 2021 there’s been a discussion about performance-related pay, and the executive committee, despite having performed in my view outstandingly in its response to Covid, considered that in light of the impact of that on the country, it would be wrong for them to be considered for performance-related pay in the current year.”
Randell said it had also been decided that executive committee members “shouldn’t receive performance-related pay in the future” and that in addition the board should take this opportunity to reduce both higher pay packages for committee members and the average level of executive pay.
The FCA’s executive committee oversees the watchdog’s general strategy, direction and activities, including its annual business plan, and the watchdog’s website lists eight individuals as members, including new FCA chief executive Nikhil Rathi, who took the post in October 2020, and Megan Butler, who was one of three senior individuals named in the critical report on LC&F.
However, last week the FCA announced four new appointments to its executive team.
When LC&F collapsed in January 2019, more than 11,600 people had invested a total of £237m at an average of £20,000 each. Its “mini-bonds” had promised returns to investors of up to 8% a year.
Mel Stride MP, chair of the committee, told Randell that some observers may feel that with this type of case, “the buck never really stops anywhere”.
Randell replied: “I think the buck stops with me.” However, he said that in terms of the ambition to change the organisation and make it “as good as I would like it to be, in my view [that] will not be realised for a number of years”.
Randell also said that, looking at the system as a whole, including the Financial Services Compensation Scheme and the Financial Ombudsman Service, the majority of staff were dealing with “cleaning up the mess” relating to problems that had already happened, rather than prevention. “That is a crazy system,” he added. “We have got to be preventative as our absolutely first priority.”
The FCA chair also said that high-risk financial products had become “much more accessible … A lot of things are done on a one-click basis, and a lot of huge mistakes are made on a one-click basis”. He said there needed to be a redesigning of the “consumer journey” so that it was fit for the digital age.