What does the departure of Martin Wheatley foreshadow?

While few had predicted the imminence of Martin Wheatley’s resignation, many have been critical of his performance at FCA in its short lifetime. At a personal level, like many in the City, we will be sad to see him go, but regulation is not a personal matter – it matters rather more than that.

Martin was brought in as a tough cookie, to be a tough cookie and to lead a tough regulator. That he has done, but, as ever, regulatory endeavour is characterised as damaging to the industry and as failure by the regulator who did not prevent the offence that it prosecuted. It is all too common to hear the view that all those regulations and all that cost have not prevented City malpractice. And yet those same commentators have no expectation that the police will ever bring an end to murder. Any substantial barrel will contain some rotten apples; the challenge is to minimise their number and to pluck them out quickly. Martin and the FCA have been working on that very agenda, but now the goal-posts are on the move and regime change is to follow.

In one sense, to the extent that the removal of Wheatley is calling the turn in regulatory policy, this news is to be welcomed. The rate of fine inflation is not sustainable. Competing with the US to see who can rack up the highest level of fine is a mug’s game, not least because it assumes that there is something admirable about US regulation. However much he may be remembered for his much-regretted remark about shooting first, the FCA did not follow the US down that unjust road. But the habit of massive fines, now paid directly to the coffers of HMT, damages balance sheets and penalises shareholders. If the target is a combination of expelling the villains and focusing the minds of senior management, there are better ways of achieving the aim.

But if this is the turning point, what is turning? Some of it will be about pure rhetoric. The era when anyone from the City, whether banker, professional or official was to be vilified at every opportunity is over. We know the government is now ready to help champion the financial services industry of the United Kingdom, a challenge that the Lord Mayor has always pursued, even while ministers were undoing the good work. But that presentational change must be supported by changes in substance. If the era of massive fines is to be drawn to a close, where will the credible deterrence come from?

The shift in policy may be about to become a shift in focus. No longer should shareholders be the ones to suffer from conduct failures – the spotlight moves on to the miscreants and the managers. Out with corporate fines, in with fines for approved persons and, of course, for the ‘senior managers’, so recently brought into the regulatory regime. This should not be penalties for those managing the wrong place at the wrong time; it should deal first with those who transgressed and second with anyone who abetted, turned a blind eye, obstructed the efforts of Compliance or ignored warnings of unmanaged risks.

Would this be new? It would be a move away from the American concept of corporate culpability and back to personal responsibility, which has been the foundation of our justice system for centuries. Would it materially change the role of the regulator? There would be a different relationship between regulator and industry, with both working together to find and expel the individuals who do the damage. Away would go the justification for the CEO who failed to support the regulator in its endeavours – they would no longer be targeting the company. Just as business generally supports the police, so business would support the regulator. That would be something new.