The Treasury Committee has called on the Financial Conduct Authority (FCA) to be more "interventionist" and "proactive" in its approach, following the damning findings of the regulator's failings in response to the London Capital and Finance (LCF) mini-bond scandal.
In a report published on Thursday (24 June) the Treasury Committee slammed the FCA's board and most senior executives as failing to meet "the standards which [the regulator] seeks to impose on others".
It follows an investigation under Dame Elizabeth, which in December revealed significant failures in the regulator's handling of the multi-million pound LCF and Connaught scandals, and included recommendations for change at the FCA.
There are doubts as to whether the FCA board has met the standards which it seeks to impose on others."
Most significantly, the changes included "restructuring the FCA", several new hires, and implementing a "use it or lose it" policy whereby firms may have their authorisations revoked as a result of inactivity.
In addition, discretionary pay awards for the FCA's executive committee members, which had been deferred in respect of the 2019/20 year, will now not be paid.
The Treasury Committee's inquiry into the findings of the report made further recommendations to the FCA and HM Treasury.
It said the FCA needs to become a more "proactive", "agile", "decisive", and "joined-up" regulator that is "willing to act to protect consumers and financial markets".
To that end, the committee said the FCA's board should set itself an end date for the "transformation programme" and create milestones at which changes in culture can be reviewed. This should be made public, it added.
Citing the Senior Managers Regime, the Treasury Committee said it is "not readily justifiable" for the FCA to place such onerous requirements on regulated firms while failing to "apply similar principles internally when there are failings of practice and culture in the organisation".
"There are doubts as to whether the FCA board has met the standards which it seeks to impose on others," it added. "An over-reliance on collective responsibility may deny visible accountability and could lessen confidence in the organisation as a result."
In addition, the report said the FCA should be more active in taking action against breaches financial promotion rules, noting the regulator has the power to ban.
"In future, the FCA should be more interventionist and should make more frequent use of its powers rather than maintaining a culture of risk aversion," the Treasury Committee added.
The committee also recommended that the FCA should require authorised firms to make the risks to customers associated with their unregulated activities "explicitly" clear, adding that the regulator should be given the power to recommend changes to the perimeter of regulation formally to HM Treasury.
Commenting on the report, chair of the Treasury Committee Mel Stride MP said: "The collapse of LCF is one of the largest conduct regulatory failures in decades.
"Dame Elizabeth Gloster identified a litany of failings at the FCA regarding its regulation of LCF, and highlighted a range of changes needed at the FCA under its new leadership.
"The Treasury Committee has made some further recommendations for the regulator and the government to help prevent another LCF."
Meanwhile, PIMFA director of government relations and policy Tim Fassam said: "Today's Treasury Select Committee report calling for a change in culture at the FCA is welcome and echoes many of the recommendations PIMFA has previously made, particularly through our Future of Supervision and Future of Regulation policy papers.
"Our industry called on the FCA to act over London Capital & Finance repeatedly. A more agile, engaged and decisive regulator could have prevented the losses suffered by thousands of consumers as a result of what happened with LCF and it is encouraging that the current senior leadership of the FCA recognises.
"But as the Treasury Select Committee says in its report, the FCA must set milestones for change to be achieved," he said.
"We also agree with the Treasury Select Committee that it is disappointing measures to address fraud via online advertising have not been included in the draft Online Safety Bill, something which PIMFA has campaigned for, and will continue to campaign for.
"As the Treasury Select Committee, rightly in our view, states this is a missed opportunity to prevent another LCF-type event in the future."
First published by our sister title Professional Adviser