On 6 May 2010, the eve of the last election, then-FSA chief executive Hector Sants sent a pointed email to staff.
“If the Conservatives form the next government, we know it is their intention to make changes to UK regulatory structure,” he wrote.
In fact – as Sants knew very well – the Tories had pledged to scrap the FSA and replace it with a new regulator. His incendiary message – almost certainly in breach of strict pre-election purdah rules – was a euphemism warning staff they could lose their jobs under the Tories.
Current FCA chief Martin Wheatley, who joined in 2011, is keeping well clear of the election debate but the irony is that he is in the firing line even more than Sants and the FSA in 2010. Rumours are swirling that both main parties are beginning to lack faith in senior management at the FCA.
Firstly, the botched briefing to the Telegraph of a review into closed-book pensions last March. Inaccurate information went uncorrected and saw share prices fluctuate billions under a false trading market.
Chancellor George Osborne said he was “profoundly concerned”. That’s politician-speak for very, very angry and one step away from calling for a resignation. It was a killer blow to Wheatley’s reputation.
The Treasury select committee (TSC) piled on the misery last month by lashing out at wider failings at a dysfunctional organisation.
It slammed FCA communications, working relationships, the board, focus on objectiveness and more. It was brutal and in private TSC members are even less complimentary.
Secondly, the interest rate swaps redress scheme. Thousands of businesses were ripped off by banks preying on their lack of knowledge to sell complex derivate products to hedge against interest rate rises. Interest rates plummeted and businesses lost thousands, some went bust.
The FCA set up a redress scheme but MPs, who are getting letter after letter from angry small businesses in their constituency, are furious about how it has been conducted.
In December 2014, Tory MP Guto Bebb launched a third parliamentary debate on FCA failings. He said the scheme was a “failure”, “unfair”, “unacceptable” and must be changed. MPs then spent three hours bashing the FCA record in the House of Commons.
Thirdly, pensions. The Government has stepped in with a radical agenda for pension freedom but many politicians blame regulatory failure in the annuity market.
Prospective Conservative consumer protection minister (Baroness?) Ros Altmann has been one of the most vocal critics and could have a post-election remit to investigate the FCA.
And lastly, banking. The Labour party wants tougher regulation of banks which involves some legislation such as extra fiduciary duties but is also cultural.
It will expect the regulator to get far tougher with banks including bigger fines like in the US, as shadow Treasury financial secretary Chris Leslie has said.
On the flip side, senior banking figures with the ear of the Tory Treasury are concerned about excessive banking regulation, especially from the senior persons regime. Osborne will want to do everything he can to stop HSBC and its tax revenues leaving the UK. Insurers have been privately critical of his approach to pensions too.
Too tough for the Tories and too weak for Labour – that’s the risk of being in the political crossfires.
It all means Wheatley has lost the backing of some powerful individuals. Sources say Treasury economic secretary Andrea Leadsom has major concerns about his role and was a big critic when she sat on the TSC herself.
Leadsom is a powerful and experienced voice in the Treasury and is almost certain she has relayed her fears to George Osborne.
If the Conservatives win power then it is likely that Wheatley will have two high profile ministerial critics – Altmann and Leadsom – in the Treasury, an angry TSC and a bruised financial services sector. A toxic cocktail.
And if Labour are elected then Wheatley will need to satisfy their consumer protection agenda while new Governments have a penchant for new faces and fresh starts.
Politicians pay lip service to the regulator being independent but they can apply immense pressure and if a chief executive has lost the support of the Treasury then they have to go. Political pressure defines the shape and flow of regulation – whether too lax in the boom times or too tough in harder times – and it can also define who has the tops jobs.
We saw how Osborne brutally remove RBS chief executive Stephen Hester when it didn’t suit his political agenda. RBS was meant to be independent but, make no mistake, Osborne sacked Hester.
If there is a lack of support in the Treasury, parliament or industry and it suits the next Chancellor to make a change then they will.
Wheatley spent five years as CEO of Hong Kong’s Securities and Futures Commission reforming their financial system. As an example of his toughness he likes to tell financial services audiences that he once had his effigy burnt in the street after one controversial decision
There may not be effigies in London just yet but the political pitchforks are circling with Wheatley in their sights.
He once described his approach to regulation as “shoot first, ask questions later”. Well, he might be about to learn that politicians have a similar approach when dealing with bureaucrats they don’t like.