When one wishes to look into the mind of a regulator, an interview is worth a thousand press releases. The BBC Radio 4 Moneybox interview with Tracey McDermott, the acting head of the United Kingdom's Financial Conduct Authority, over the last weekend was a case in point.

Readers who did not hear it might find it instructive to read on and gauge for themselves whether the interviewee lets anything slip that the Government might rather keep under wraps. They must also remember that, although her replies seem a little flustered at times, this her at her credible best, when she is rehearsed.

Ambition in remission

She was asked to confirm what George Osborne announced on Radio 4 the previous Thursday, namely that she did not want to be the FCA's permanent chief executive. Her method of explaining this was tight-lipped but also rather peculiar: "It was very much a personal decision. At this point in my career I didn't think it was the right role for me, I think it's time for me to think about what I want to do in the future, so it was a personal decision."

Let us burrow deeply into the wording of this non-answer. In the four sentences of her reply, the first and last are assertions of the obvious: that her decisions are hers. The second sentence is another way of saying that she did not want the job, so she is confirming that point, but the third is most revealing (or at least, most revealing for such an exceptionally incommunicative answer): "I think it's time for me to think about what I want to do in the future."

As this is not an answer to the question, why did she include it? Listeners, including this one, wonder whether it could be a sign of disappointment, that she did not want what she could not have. Was it the Chancellor who told Tracey that she was not going to get the vacant job, only to be told in return that she did not want it any more and that she was thinking about moving on? We may never know.

It is certainly true that the Chancellor did not want Martin Wheatley, the previous holder of the post, to carry on. Wheatley was thought of, perhaps erroneously, as a tough regulator who took a lot of pre-emptive action against the firms in his sights. It is possible that the Chancellor, who has treated Britain's banking interests with far more sympathy since the last general election gave his party a rock-solid majority in the summer, and indeed whose party was obtaining more than 80% of its funding from the financial sector as early as 2010, wishes not to hand out permanent promotions to other senior figures (such as Tracey McDermott) who also have a reputation for being on the tough end of the regulatory spectrum. If true, this could be welcome to our readers.

Is the FCA going soft on banks?

Also on the programme, barrister Peter Hamilton blamed Wheatley's departure for the softening of FCA policy. He referred to the fact that Santander UK was returning to the investment advice market in the UK and planned to have a force of 225 advisers all over the country (who could earn bonuses) by the end of March, even though the regulator had fined that bank £12 million in 2014 for investment advice failings. Hamilton said that Santander's decision to come back tended to suggest that it was feeling more confident about the way in which it was going to be regulated. He thought that consumers were going to notice the change in policy quite quickly: "For example, if the banks do roll out a financial advisory service, the consumers walking into those banks to cash cheques are going to be faced with what used to happen, someone sidling up to them and saying 'have you thought about life insurance or your ISA allowance for the year?' This supports the view that the FCA is going back to a lighter touch as far as the banks are concerned."

Much of the programme dwelt on the charge that the FCA has lately become too cosy with financial firms, especially the banks. Its decision not to publish a report about how firms offer inducements to sales staff came up, as did its decision not to take formal action against HSBC over revelations that its Swiss arm helped clients to evade tax. It also mentioned that the FCA, as a further sop to the mighty financial lobby according to some, is also thinking about setting a date beyond which customers can no longer make claims for firms' misdeeds over Payment Protection Insurance (PPI).

The BBC presenter, for one, referred to the idea that the FCA was going soft on banks as "the live question of the week." He asked Tracey McDermott why she and her people had walked away from things that might have made the financial markets more effective, notably by deciding not to carry on with the review of the culture of banks (discussed on this site on 31st December). Her reply: "I very much welcome the opportunity actually to set the record straight on this because there's been a lot of press coverage about this in the last few days. We started that work earlier in the year. We reviewed whether or not doing this through a thematic review was the right way to go and what we concluded on the basis of the initial work we had done [here she laughed slightly] was that actually this was something that was very much more individually firm-specific, so we decided that we should take that forward [here she breathed heavily] through the individual work with particular firms, so we have not let up our focus on culture at all; we have simply decided that this is not the best way to achieve the objective."

Kulturkampf

In its business plan for 2015/16, submitted last spring, the FCA promised a 'culture review,' saying: "In 2015/16 we will conduct a new thematic review on whether culture change programmes in retail and wholesale banks are driving the right behaviour, in particular focusing on remuneration, appraisal and promotion decisions of middle management" - the very areas that helped the banks to rig the Libor rate and fix foreign exchange rates. When it was put to Tracey McDermott that she should be keeping this promise and then telling the general public what went wrong, she eschewed the idea of a thematic report that gave the public the 'big picture' about compliance culture and put her general faith in information coming out firm-by-firm in regulatory 'final notices', which are very often negotiated between the regulator and the recipient of the punishment: "We are looking at that but we are looking at it on an individual basis. Where we find that there are poor practices in areas such as remuneration, we do call that out. We call that out in things like our final notices in relation to Libor and FX, we called it out in our final notice in relation to the Barclays fine in December, the fact that...remuneration...was part of the fact that led them to go round their controls, we called out in our wealth management thematic review that we published earlier in the year that it was an area that we had looked at in terms of culture."

The BBC presenter seemed to be under the erroneous impression that the FCA, a corporation wholly owned by HM Treasury, was "supposed to be independent," adding to the mounting evidence that the general public is blind to the ways of regulation. He told the FCA chief that her critics were alleging that she was "following the government line," as though this was something that the draftsmen of the Financial Services and Markets Act 2000 did not intend. He went on: "You're softening the approach to banks. The Chancellor has cut the bank levy, he's called [surely he meant 'reached'] a new settlement with the banks, and now it seems that the FCA is following this, basically saying you go ahead, make money as you choose, we'll have a word with you but we're not going to do much in public about it." Tracey McDermott replied: "Nothing could be further from the...from, from the truth."

When no end of questioning produces meagre results

The interviewer asked, once again, whether she was following the government line or not. Her reply was not entirely a yes-or-no one: "We are not going soft on the banks. We are not being told what to do by the Government. We have objectives that are set for us by Parliament in a statute and we are determined to deliver on those."

Once again, when she was asked the question of whether it was true that the Treasury was influencing her organisation and that the FCA and the Treasury were going back to a 'lighter touch' regulation, she did not answer with a yes or a no: "The reality is that we make our decisions about what we think is going to be the most effective way to achieve the outcomes that we are looking to achieve. That includes holding the banks to account where we need to."

Individual firms' specific decisions

The odd phrase "individual firms' specific decisions" came up in the interview, with Tracey McDermott claiming that the FCA never commented on such things. One might expect the regulator to keep some of its own decisions about a firm quiet, the better to receive information in confidence, but a policy of never commenting on anything that a bank, an IFA or an asset management company does sounds slightly reckless, especially in times of crisis in the markets and especially in the pages of a final notice. Nonetheless, she made the assertion in the following conversation.

"Is it true that you've decided to take no action against HSBC following the Swiss leaks about the collusion by its staff in tax evasion by some of its customers?"
"Um. We don't comment on individual firms' specific decisions."
"So you can't say that you've decided to take any action or not to take any action?"
"We don't comment on individual firms' specific decisions."

However, when the conversation returned to Santander and its 225 sales staff, she seemed to follow a different policy by saying: "Santander along with others had withdrawn from that market. They've now changed their processes, improved their procedures and they're re-entering that market and I think it's good for consumers."

This, readers will notice, sounds uncannily like an FCA comment on an individual firm's specific decision.

A regulator that stands up for what it believes in

It was reported recently that the Financial Advice Market Review's expert panel is thinking of recommending the return of commission sales, something that the FCA has long banned under the Retail Distribution Review. When asked to react to this, Tracey McDermott did so in a way that must have dumbfounded some listeners. The first words out of her mouth, when asked what she thought about such a threat to a central plank of the FCA's flagship policy, were: "We have got 290 responses."

One might have expected a truly independent regulator (or one who stands by all her organisation's dearly-held long-standing principles) to hold fast to the line that her outfit has been taking up until now - that all commission ought to be avoided, the better to separate investment advice from selfish motives on the part of the advisor. One might have expected the first words out of such a regulator's mouth to be "you know our stance on this; we are worried," or something of the sort. Instead, the temporary chief regulator talked irrelevantly about the importance of canvassing opinion: "We have got 290 responses to the Financial Advice Market Review from all sorts of bodies, including consumer bodies, and we'll be looking at those carefully over the course of the next month or so."

There then came something of a fudge: "We do not want to go back to a world where we have the problems of the pre-Retail Distribution Review [sic]. What we do want to look at is actually what is the best way of delivering advice and guidance across the market, so I wouldn't rule out that there may [sic] be some element of commission but we are not going to reverse the Retail Distribution Review."

A close analysis of this response reveals that all the FCA chief is doing here is saying that the United Kingdom will not re-create all the problems that existed before the RDR began in 2013. This implies that, in her eyes, any smaller group of problems that fall short of the total, therefore, might be acceptable. It is also a mystery why the regulator is claiming that she knows how this initiative will develop in the future when she has been at pains to convince the interviewer that it is largely out of the FCA's hands.

When asked one last time whether or not she would rule out an element of commission in future sales of investment products, this steadfast champion of long-established FCA policy said: "We would need to look at whether that was one of the options that's been put forward."

The poisoned chalice

Perhaps the main revelation of the programme is the fact that whoever ends up doing the top job at the FCA later this year will be handed something of a poisoned chalice. HM Treasury seems intent on slackening regulation again, while the public and the influential Treasury Select Committee want to hold bankers and others to account. The FCA is not independent and was never designed to be; before the formation of the old Financial Services Authority, only small countries had all-in-one regulators and everyone in their jurisdictions knew that they were so designed because it was handy for politicians to have only one person to ring up when they wanted something or when things went wrong in the financial markets.

Mark Garnier MP, who sits on the Treasury Select Committee, told Compliance Matters today: "The difficult line to walk is that between consumers and those who are regulated. If you go too heavy as a consumer champion, are you (the FCA) acting to the detriment of the regulated industry: if you go too heavy as a champion for those who are regulated, are you allowing too much space for consumers to be legged over? Consumers feel they are not being properly looked after by the regulator; banks feel they are being over regulated. It is a difficult line to walk for the CEO of the FCA."