Britain's Financial Conduct Authority (FCA) has significantly reduced the number of secret investigations into financial firms, an initiative known as "skilled persons reports," despite being granted broader powers to protect consumers and prevent scandals. In the year leading up to March, the number of these in-depth reviews fell to 31, the lowest figure in eight years. This represents a sharp decline from 83 investigations conducted two years prior, coinciding with the introduction of new consumer duty rules designed to safeguard the public.
The reduction in probes occurs as the FCA faces increasing pressure from government officials to adopt a more lenient regulatory approach to stimulate economic growth. Treasury Minister Rachel Reeves has stated that excessive regulations and bureaucratic hurdles are hindering businesses and stifling innovation. However, these views have drawn criticism from Bank of England Governor Andrew Bailey, who cautioned against overhauling regulatory frameworks too drastically.
Critics argue that the FCA, which operates with a budget nearing £800 million, possesses sufficient resources to conduct more reviews and suggests the decline reflects a deliberate choice rather than necessity. Andy Agathangelou, founder of the Transparency Task Force, expressed concern that the decrease in independent oversight undermines the effectiveness of consumer protection measures. He stated that a thriving financial sector cannot rely solely on self-reported good conduct and voluntary commitments, emphasizing the need for external verification. Agathangelou warned that a decline in such scrutiny could exacerbate the existing trust deficit, posing an economic risk.
The decrease in skilled persons reports follows calls from Members of Parliament for a public inquiry into financial conduct regulation. An earlier parliamentary report identified a persistent pattern of financial scandals, attributing them to systemic issues including the disregard of early warning signs, the marginalization of whistleblowers, delayed regulatory interventions, and substantial financial losses for consumers.
These skilled persons reports are conducted by external experts to identify weaknesses in firms' systems for detecting and preventing financial crimes like fraud and money laundering. The significance of these reviews was recently underscored when shares of wealth manager Rathbones experienced a sharp decline after a skilled persons review uncovered deficiencies in its client due diligence processes. In response, Rathbones voluntarily paused onboarding new clients requiring extensive due diligence and halted the acceptance of funds from its highest-risk customers, a move anticipated to cost the firm up to £1 billion. The review also highlighted shortcomings in Rathbones' implementation of new consumer duty rules, prompting the company to cease charging fees on cash held within client portfolios.
The FCA maintains that the number of skilled persons reports fluctuates annually based on identified risks to consumers and markets. A spokesperson for the FCA stated, "We have a wide range of tools and take the most proportionate approach based on the risks we identify." FCA CEO Nikhil Rathi has indicated a strategic shift, suggesting that the consumer duty rules are expected to fulfill many regulatory functions, potentially leading to fewer formal rules in the future.