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A failing, bloated, defensive organisation
The All Party Parliamentary Group (APPG) on Personal Banking and Fairer Financial Services (members) has just published some testimonies about the FCA as part of its call for evidence about the FCA.
This testimony from an anonymous FCA employee is particularly striking (though to me, as a previous FSA staffer, not surprising.
Overall, a negative and depressing time in working at the FCA. The FCA has developed a toxic culture and spends huge resources, time and effort on self-protection, of itself, at the expense of supporting consumers. The FCA appears to operate in a malicious and vindictive way and is not willing to accept any kind of constructive criticism from staff. The FCA is a wasting money and staff effort on self-protection which is quite sickening when set against the context of its failures in recent years to regulate firms properly. Based on the evidence I have seen, the FCA is simply not doing its job and has become a failing, bloated, defensive organisation – with most of its efforts and resources going on self-promotion and trying to counter the many criticisms of it.
Quite. The whole unstated purpose of a regulator is to protect itself. When I worked there, you had to suffer all these ridiculous initiatives about ‘learn and change’, ‘vision and values’, ‘making a real difference’ and (at the Bank) ’20 20 vision’, which come across as noble and visionary but really translate to “keep the gravy train running, and don’t get caught for mistakes, even if that means doing nothing much of the time”.
There needs to be strong scrutiny of this absurd organisation, but who has the patience (and the competence) to do it?
Dodgy Dealing?
Lovely article “Baroness Bowles questions UKEB over “true and fair” assessment” by Cintia Cheong in today’s Guy Fawkes special edition of Insurance ERM. In essence, the good baroness accuses the UK’s accounting standard Endorsement Board (UKEB) of dodgy dealing.
In da house
An interesting set of questions here from Baroness Bowles of Berkhamsted about a possible conflict of interest in advice to the UK Endorsement Board.
Question[s] for Department for Business, Energy and Industrial Strategy Baroness Bowles of Berkhamsted Liberal Democrat, Life peer.
Asked 14 October 2021
Due for answer in 13 days (by 28 October 2021)
To ask Her Majesty’s Government why the UK Endorsement Board is not using in-house counsel to instruct barristers for public interest legal advice; and why they are instead using Katherine Coates.
To ask Her Majesty’s Government what assessment, if any, the UK Endorsement Board have made of any potential conflict of interest of instructing Martin Moore QC to work on the endorsement of accounting standards either (1) directly, or (2) indirectly.
To ask Her Majesty’s Government whether the UK Endorsement Board has sought the advice of Martin Moore QC in the course of seeking endorsement of for its accounting standards either (1) directly, or (2) indirectly through Michael Todd QC.
To ask Her Majesty’s Government whether they will place copies of the tender documentation of the UK Endorsement Board for the procurement of legal advice and legal opinions in the Library of the House.
What could all that be about?
Dangerous addiction
The Lords report on Quantitative easing is out this morning. Incredibly it is the UK’s first independent comprehensive report into QE.
The report … calls for the BoE to outline a road map that demonstrates how it intends to unwind QE and to engage more openly about the side-effects of the programme, particularly inequality. It suggested that QE artificially inflated asset prices, such as shares and house prices, which had disproportionately benefited those owning them, exacerbating wealth inequalities. “Just ask any youngster trying to buy a flat and they will tell you about the impact of QE,” said Forsyth. (Financial Times)
Generous coverage in the popular press.
Float Like a Butterfly
Brexit superhero Steve Baker MP was in fine form on the last (23 June 2021) Treascom meeting. The witness before the Committee was PRA chief executive Sam Woods. Steve began by asking (transcript here, Q69 ff)
‘Q69 Mr Baker: …can I go back to Harriett Baldwin’s question about matching adjustment? If I understood correctly … you said it is about capital being set against expected cash flows. Could you just tell me something about the risk profile of those expected cash flows?
Does IFRS 17 require the use of discount rates that are too high?
Well obviously, but interesting that the question is now on the official list of priorities for the UK Endorsement Board to consider.
Their summary is interesting.
- Some stakeholders have raised concerns that the requirements in IFRS 17 regarding the determination of discount rates will lead to excessive subjectivity (whether in respect of illiquidity premiums or the elimination of market and credit risk). Further, does IFRS 17 require the use of discount rates that are too high because they are in excess of risk-free rates?
- This is a pervasive aspect of IFRS 17, often with a material impact on the accounts
- An area of significant entity-level judgement
- Requirements have attracted controversy and are a primary focus for certain stakeholders
- Use of rates in excess of risk-free has (indirectly) been referred to in parliamentary debate
- Users of accounts consider this an area of potential concern due to the subjectivity and the scope for variety in rates applied
My emphasis. I discussed the ‘parliamentary debate’ issue here.
Nobbled by industry
Sharon Bowles has attacked the UK’s accounting standards Endorsement Board (UKEB), saying anyone who endorses the upcoming IFRS 17 insurance contracts standard is probably in the pay of the insurance industry.
Strong stuff at the Lords
Strong words from Sharon Bowles at the Lords yesterday, about whether the Secretary of State should delegate responsibility to the UK Endorsement Board.
With the proposed new insurance standard, IFRS 17, the issues go further than unrealised profits, and credit is given to reduce liabilities, not merely for unrealised gains, but for anticipated future income, giving the appearance of capital.1 This cannot be proper accounting. These unrealised gains, and anticipated income can neither be used to service debt, pay down debt or invest in other assets, nor have any value as collateral. No way is it true and fair, and anyone endorsing it would surely have to be nobbled, which seems to aptly describe the UK endorsement board.
Three have been members of the former Accounting Standards Board, which has approved defective accounting standards in the past. Several were partners in accounting firms at the time banks were collapsing. Mr Ashley, former ASB member, was also a career KPMG partner, which the UK Endorsement Board website fails to note, and of course KPMG were the auditors of Carillion and HBOS.
In the case of former ASB member Mrs Wallace, at least the website references her connection to PwC, the auditors of Northern Rock, but it is silent about her time at Arthur Andersen. The Board includes another recent PwC partner, and a partner from Grant Thornton, which is currently defending itself, given the problems in auditing collapsed Patisserie Valerie. There is no mention that Board member Kathryn Cearns has worked for the ASB, and then for the law firm Herbert Smith Freehills, which as well as providing defence advice to PwC and KPMG, also instructed the ICAEW’s counsel to give the dubious ‘true and fair’ legal opinions for the FRC, from which the Government eventually distanced itself, as I discovered in FOIs.
Liz Murrell, an employee of the Investment Association, and Paul Lee, a consultant to the Investment Forum, are also on the Endorsement Board, and both those organisations are dominated by insurance companies whose accounts will benefit from using IFRS 17.
Who is there to represent the public interest, and act on the known lie that Brydon, and indeed the Government’s consultation acknowledge, that accounting standards alone cannot be true and fair. Who is there to represent the policyholders of insurance companies who, barring more Government bailouts will be the victims [when] accounting standards cause them loss. One could hardly wish for worse in terms of an unbiased view.
And no wonder they need protection from liability. Today is a bad SI. This is a bad SI, and we don’t need this Endorsement Board.
It is difficult to improve on that. (I stepped down from the Technical Advisory Group in February for reasons I made clear in a letter to Pauline Wallace, chair of the Board). This one will not go away.
[EDIT] The full transcript, including some equally fruity stuff from Lord Sikka, is here.
Could cladding scandal trigger new bank crisis?
Blimey, reports the Daily Mail.
The building safety scandal could lead to the next banking crisis if leaseholders are forced to pay for repairs, MPs were warned yesterday. Former Bank of England economist Dean Buckner said widespread mortgage defaults could spark a Northern Rock-style run on the banks. His dire warning came after campaigners told the Commons Housing Select Committee that ministers needed to ask them for a spreadsheet of building safety data because they ‘had no handle’ on the scandal themselves.
The Housecom hearing is on Parliament TV here.