Bank of England embroiled in FCA decision to drop review of UK banking culture

The Bank of England appears to have been instrumental in plans to drop a review of UK banking culture meant to have been carried out by the Financial Conduct Authority – despite the regulator categorically denying there was any influence on its decision.

Megan Butler, executive director at the BoE's Prudential Regulation Authority (PRA), oversaw the decision to not continue with a review into pay and bonuses at UK banks, which the FCA leaked out over Christmas, according to documents seen by the Financial Times. Also shelved was a review into HSBC's Swiss private bank, relating to allegations of gargantuan iniquity involving high net worth account holders.

The FCA categorically denied influence on its decision to drop the reviews from the BoE, PRA or the Treasury. Following a freedom of information request, the regulator said it first informed the BoE of plans to shelve the inquiry on 17 December.

An FCA spokesman told IBTimes UK: "As Tracey [McDermott, FCA acting head] has previously said, the FCA decision to not continue with the thematic review on culture was taken by her. To suggest there has been any PRA/BoE influence on this decision is simply untrue."

Butler, who took up secondment at the FCA in September 2015 shortly after its former CEO Martin Wheatley was forced out, is fast become grist to the conspiracy theory mill.

The decision to drop the inquiry was made two weeks after Wheatley's departure, but not made public until Christmas. The FCA's head of supervision, Tracey McDermott was promoted to acting chief executive after Wheatley's departure.

McDermott was widely tipped to take over chief executive role full time at the FCA, but pulled out of the race to succeed Wheatley, in a move announced by Chancellor George Osborne earlier in January. Butler replaced McDermott as head of supervision at the FCA.

The Treasury Select Committee is to hold a session with the FCA on 20 January over the shelving of the reviews. Butler has now been called upon to appear before the committee by Labour MP John Mann.

According to internal memos at the FCA from September 2015, the job of assessing working culture at banks could be better carried out by industry bodies such as the Banking Standards Board. The obvious political concern is that the government is leaning on regulators to go easy on banks.

The review into HSBC stretches back to 2012 after the bank's $1.9bn (£1.3bn, €1.8bn) fine in US for poor money laundering controls. The was initiated by the FCA's predecessor, the Financial Services Authority. Apparently, findings from the review will be rolled into the EU's Markets in Financial Instruments Directive (Mifid) II.