Finance

ALEX BRUMMER: Griffith-Jones must quit as FCA chair as regulator probes Barclays and Lloyds scandals

Unsuitable: FCA chairman John Griffith-Jones

The whistleblowing scandal at Barclays, together with fresh disclosures suggesting a cover-up at the highest level of Lloyds over the scandal at HBOS’s Reading branch, means the Financial Conduct Authority finds itself at the centre of two highly sensitive probes.

Both investigations will test the public’s faith in the integrity of the financial system.

No one doubts the ability of the highly respected chief executive of the FCA, Andrew Bailey, who was drafted in from the Bank of England, to conduct the most thorough inquiries.

But as a result of remarkable complacency in the Treasury and the City, it is astonishing that at such a sensitive time that the chairman of the regulator is John Griffith-Jones, the former senior partner at auditors KPMG.

It was on his watch at KPMG that HBOS came within a hair’s breadth of failure without the auditor blowing the whistle ahead of the rescue bid by Lloyds.

KPMG was also the Co-op Bank’s auditor, and suffered heavy criticism by MPs over its lack of due diligence at the time of the bank’s takeover of the Britannia building society. The Co-op Bank currently stands on the brink of failure.

Matters have been brought to a head by disclosures relating to the fraud which took place at HBOS’s Reading branch where the costs are soaring.

The scandal has cost Lloyds some £245million and it has set aside a further £100million to compensate victims.

Griffith-Jones, of course, bears no responsibility for the high jinks at the Reading branch.

But what we now know is that executives at HBOS may have been aware of a fraud there as long ago as 2008 when it was merged with Lloyds, and as far as we know executives were anxious ‘not to disclose’.

Auditors KPMG, who might have been expected to raise a stink, did nothing.

The FCA has been clear that Griffith-Jones stepped aside from the various inquiries into HBOS so there is no conflict of interest.

That is not good enough. The integrity and independence of Britain’s top financial regulator, responsible for protecting the consumer from wrongdoing, needs to be beyond reproach.

It makes a mockery of the post-crisis regulatory regime that someone who held high office in a firm so deeply involved in two banking collapses should be occupying such a role.

Chancellor Philip Hammond should ask for Griffith-Jones’s resignation. A chairman who has to excuse himself from inquiries into some of the most troubling events in the banking system is no chairman at all.

Pay hypocrisy

One of the dirty little secrets of the City is how the backwater of fund management became so well paid.

It is even more remarkable given that these financial gurus are the very people who are meant to hold wealth-creating FTSE 100 executives to account over remuneration.

Analysis by the FT shows there were big pay cuts in the sector in 2016, led by Andrew Formica of Henderson, who saw his income slashed 65 per cent to £2million.

Martin Gilbert, who is seeking to cement a merger with larger Standard Life, saw his pay reduced by 35.5 per cent to a mere £2.8million. A smaller reduction was recorded at Jupiter.

It would be nice to think that the pay cuts reflected greater scrutiny by remuneration panels, and recognition of the hypocrisy involved.

The reality is more about changes in financial conditions. Many managers, such as Aberdeen, were affected badly by a switch in investor fashion, which saw emerging market outflows.

As significant is a loss of confidence in active management. Investors have grown restless with high charges which eat into returns.

Charges were the subject of a critical report recently from the Financial Conduct Authority. Inappropriate management fees, which enrich managers at the expense of clients, have become a huge irritant.

These have sent investors scurrying into lower-cost vehicles such exchange-traded funds and passive funds such as Vanguard.

Investors may be willing to pay a premium for performance, but they don’t want to see returns gobbled up by yachts for the bosses.

Freedom festival

Last night Jewish people and friends from other faith groups sat down to recount the ultimate Brexit story.

The Israelites, having delivered all manner of perils upon Egypt’s ruler Pharaoh, were given the nod to leave oppression and economic subjugation and head across the Sinai to the promised land in the Exodus story.

Once in the wilderness, many, like modern-day Remainers, wanted to turn the clock back and return to Egypt, despite the loss of sovereignty and freedom.

Sound familiar?

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