The Government broke up the Financial Services Authority, the former regulator, in 2013 into the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) at the Bank of England.
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‘The case for separation merits serious re-examination.
Punishment of banks that break the rules may be better served by a new enforcer in the light of failures surrounding the HBOS collapse, MPs say.
MPs in the influential Treasury committee are calling for the Financial Conduct Authority to separate out its enforcement division following a damning report in the collapse of HBOS.
The current system with either the FCA or PRA supervising, applying and prosecuting the law is outdated and can also be construed as unfair, it added.
The report goes on to state: ‘Regardless of the outcome of the FRC’s investigation process, it is likely that the committee will want to consider its work and regulatory approach in more detail.
‘By moving enforcement away from supervision, it can focus independently on undertaking its key functions: interrogating evidence and assessing whether a regulatory breach has been committed’.
Britain needs a new financial watchdog to punish wrongdoing in order to win public confidence, further reshaping a regulatory structure that was overhauled just three years ago, the Treasury Select Committee has said.
However, the Treasury rejected this suggestion in 2014, saying there were “clear advantages to locating the supervisory and enforcement functions within the same organisation”.
“Its legacy continues to pose a major challenge for its successor bodies, particularly the FCA”, it said.
This isn’t the first time Tyrie has pushed for a separate enforcement body.
Various reports into the failures at HBOS have been published since it merged with Lloyds with the combined company requiring a taxpayer bailout of more than £20 billion in one of the most controversial episodes of the financial crisis.
Andrew Tyrie, chair of the Treasury select committee, said: “A separate body would bolster the perception of the enforcement function’s independence, and provide the regulators with greater clarity over their objectives”.
Tyrie reiterated his criticism that the Financial Reporting Council (FRC) had made a “serious mistake” in not investigating the auditing of HBOS before last November’s two reports.
The committee said it expects regulators to demonstrate a high degree of independence in its work and has asked them to confirm that conflicts of interest from having serving or former bankers on their boards are adequately managed.
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“Notwithstanding their own failings, prior to the crisis the regulators also lacked some of the tools they needed to supervise the banks”, the report said.
