“It is now a very good day to get out anything we want to bury.” Those words of Jo Moore, a Labour government aide who suggested pushing out unpalatable news on September 11 2001, shortly after the terrorist attack on the World Trade Centre, are surely burnt into the memory of all government ministers. And what better time to push out bad news than on the cusp of a new year, when the world’s attention is diverted by festivities?
On 30 December 2015 the Financial Conduct Authority (FCA) quietly performed an astonishing volte-face, announcing that it has abandoned its review of banking ‘culture’ in the UK, even though this review was part of the FCA’s annual business plan for 2015, and had, in the words of the Financial Times, “formed an integral part of its strategy laid out to parliament, business and consumers on how it would regulate financial services.” The FCA explained its decision thus: “We have decided that 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.”
Even Mark Garnier, a Conservative MP and member of the Treasury select committee, said the FCA’s abandonment of bank culture review was “disappointing”. I am surely not alone in seeing a connection between this and the removal of Martin Wheatley as the head of the FCA in the summer of 2015. Wheatley had a well-deserved reputation for wanting a root-and-branch cleansing of the Augean stables that are the UK financial services, but this no longer fitted the mood music emanating from the Treasury, where the Chancellor, George Osborne, signalled what he called a “new settlement” with the City. Many regard the ‘settlement’ envisaged as a willingness to forgive and forget the criminal blunders of the conventional retail and investment banks, if only because they remain such a massive contributor to the UK’s revenues – 5.5% of government receipts, according to a recent report by PwC, or £31.3 billion in the year up to 31 March 2014.
At the peak of the (lingering) financial crisis, British taxpayer support to UK banks totalled £1,162 billion, according to the National Audit Office (NAO). Was the bailout worth it? I couldn’t put it better than the cool assessment of the NAO: “The income generated by fees and interest is less than would be expected from a normal market investment and has not compensated the taxpayer for the degree of risk accepted by taxpayers in providing the support. Once the opportunity cost and risks are factored in, the schemes have represented a transfer from taxpayers to the financial sector.”
Have the conventional banks that helped bring about near-apocalypse changed their culture – or are they collectively breathing a sigh of relief that the period of government wrath and public revulsion now might be over? While the former may be happening in fits and starts, the latter shows no signs of disappearing. For me, the most alarming aspect of this whole sorry mess is that it appears the UK does not have a truly independent financial services regulator after all, but one that acts according to the wishes – if not the written instructions – of the government of the day. Governments come and go, but if the financial services are so critical to the UK economy then their regulation should not be a matter of political power.
What are the implications for impact investment? Ironically, rather good. For as the conventional levers of fundraising remain mired in public odium (just check out some of well-argued public comments on the FT story), the widespread yearning for a form of capitalism where it’s possible to invest in companies that both provide a just and reasonable return, which benefit wider society (and not just shareholders or bosses – who also come and go) is now well-established and represents a global, if currently inchoate, movement. The investment bankers of the pre-2008 era may be breathing more easily at the start of 2016; but as a class, they are already redundant.