The report, entitled Cultural change in the FCA, PRA & Bank of England: Practising what they preach? was produced by Cass for financial services non-profit thinktank New City Agenda, which was founded by Lord McFall, Lord Sharkey and David Davis, who stood down as a director in July.
It found since the global financial crisis, critical regulatory change was being “watered down” by politicians, laying the foundations for a subsequent crisis while accusing the regulatory heads of adopting a “deep-seated culture of box-ticking”, despite their collective annual cost of £1.2bn – six times greater than in 2000.
The report revealed that the FCA handbook costs £3,641 to produce, which Cass compared to the cost of a “second hand Mini Cooper”.
It also suggested smaller and newer firms were at a significant disadvantage, not having “armies of officials” to forge better relationships with the regulators, rather having to rely on call centre staff.
Bailey should create an independent evaluator within the FCA, as is the case with the Bank of England, the report suggested.
Authored by Lord Sharkey and Lord McFall, the report said: “Previous attempts to reform the FCA have been blown off course. Leadership changes and the perception of political interference were in danger of making the FCA into a timid and cowed regulator.
“Cultural change at the FCA should be the primary aim and responsibility of the new CEO. Andrew Bailey will need to demonstrate independence from politicians and the industry.
“This will require establishing the key purpose and values of the regulator and the metrics used to judge its performance. It should also make changing the culture in financial firms its number one priority – it can’t franchise this job out to other bodies.”
It called on the Prudential Regulation Authority and Bank of England to continue their collective efforts and engage better with the public
André Spicer, professor of organisational behaviour at Cass Business School, said: “Britain’s financial regulators must change to avoid sleepwalking into another financial crisis that will have a devastating effect on our economy and political system.
“If we want to avoid this, just making minor tweaks to the ever expanding rule book is not enough. We need to ensure a meaningful change of culture at our major financial regulators – they must practise what they preach. There is evidence of positive change but more needs to be done – or there is a big risk these important transformations will be derailed.”
