In what will be the first stamp of his authority on the UK’s Financial Conduct Authority, its new regulator-in-chief Andrew Bailey is on October 26 taking the unusual step of inviting the industry to help shape how the FCA operates.
The three-month consultation – dubbed the FCA Mission – is intended to help the watchdog refine its approach to regulating industry conduct and in doing so make the FCA, which declined to comment for this piece, more accountable for its actions.
It marks a distinct departure from the supervisory approaches favoured by Bailey’s predecessors – no-nonsense enforcers Martin Wheatley and Tracey McDermott. But to those who have worked or studied alongside him, the move towards a more transparent, open-minded regulator bears all the hallmarks of Bailey’s pragmatism, and “extreme” thoughtfulness. This is, after all, a man who insisted on sitting with his staff while at the helm of the Prudential Regulatory Authority to ensure they would talk to him.
On his arrival in June, Bailey became the third CEO to take the mantle of the FCA in a 12-month period. His arrival from the PRA coincided with the UK’s vote to leave the European Union – a decision that looks set to fundamentally change the way the watchdog regulates and its ability to influence reform.
It also followed a difficult period for the watchdog, as Wheatley’s sudden departure in 2015 left the FCA facing a leadership crisis, which in turn prompted concerns around staff retention and the watchdog’s reputation in the industry. Less than a month after Bailey took over, the regulator was also criticised in an independent report, which questioned its handling of industry complaints, and branded too “defensive in the face of criticism”.
In the middle of the debate
Tim Skeet, a 30-year veteran of the City and former Cambridge Union officer who studied at the university alongside Bailey, said the new FCA chief’s “formidable intellect” and “thoughtful demeanour” set him apart from his peers even then.
Skeet said: “He always struck me as old for his years. I remember him being someone with a very good, British sense of humour but also one of those people who cultivated an image of seriousness and maturity. He wasn’t one of those people who was going to try to make a big splash. And there were plenty of those at college.”
Skeet, who is now an independent capital markets consultant, first encountered Bailey at a Cambridge Union debate. He said: “You would have to go out the left or right-hand door after our debates depending on which way you voted, and I distinctly remember standing there chatting with him between the two lobby doors. I remember him always being part of the group that would hang around after debates with questions, points and thoughts.”
He said: “He liked the cut and thrust of debate and he would often be there engaging in discussion with people. [He was] somebody who was a formidable intellect always looking to test ideas, ask lots of questions, and think about things.”
Not a typical central banker
Former colleagues say it this measured, calm demeanour that prompted Bailey’s steady rise through the ranks on joining the Bank of England’s international financial markets division in the mid-1980s to become private secretary to former governor Eddie George by the mid-1990s and have his signature on UK banknotes as the bank’s chief cashier by 2004.
One former colleague who knew Bailey in those early years said he was one of those people who was able to competently manage both upwards, downwards and sideways. He said: “It is a rare trick, but it was evident it was paying off even then.”
But, to other former colleagues, it was the financial crisis years that allowed him to prove his mettle and set him on his current trajectory. From the onset of the crisis through to 2011, he played a lead role in the Bank’s efforts to rescue troubled institutions in the UK banking sector. He was, for instance, the man to sign off on a £25 billion cash injection to the Royal Bank of Scotland when it neared collapse in 2008. He was also on hand to help the Bank in its efforts to rescue the now-failed lender Northern Rock.
A former civil servant who witnessed Bailey’s efforts to rescue Northern Rock said Bailey left an “enduring” impression. He said: “[He was] a very action-oriented, practical person who was mostly just interested in getting things done.”
Paul Sharma of Alvarez & Marsal, who worked closely with Bailey as a director of policy and deputy head of the FSA’s prudential business unit and as deputy head of the PRA, said: “Central bankers are often very good at theory but he’s a central banker who is very good at execution – in drafting the rules and making sure they’re implemented as they should be. Traditionally central bankers are not really about both of those two things.”
Offering an opinion
A more openly critical Bailey began to emerge when he moved into regulatory roles. A secondment to the FCA’s predecessor, the Financial Services Authority, in 2011 was intended to prepare Bailey for the reinstatement of banking regulation under the UK central bank’s remit. He then took over as chief executive at the PRA and the Bank of England’s first deputy governor for prudential regulation in 2013.
Almost immediately confronted with the need to fill a £1.5 billion black hole in the UK’s Co-operative Bank, Bailey was vocal in his criticism of the former directors of the now-defunct Britannia Building Society who orchestrated a 2009 merger with the UK lender.
He was also frank about his opposition to the European bonus cap rules, which limited bonuses to 100% of salary or 200% with shareholder approval, calling them both “misguided” and the “wrong policy”. His stance sparked a long-running battle with EU regulators that saw both Bailey and the FCA refusing to comply with an extension to the rules that would have forced the cap onto smaller City institutions in early 2016 .
Such resolve was hardly surprising, according to another former university friend of Bailey’s. He said: “When he’s come up with something he’s thought through and he’s satisfied he’s thought through it, he’s not shy of offering an opinion.”
“He is not a man to shoot from the hip. He does come out with immensely intelligent things from time to time and I think people respect him for that.”
It’s an approach that must have impressed current Bank of England governor Mark Carney. When he shuffled the Threadneedle Street leadership shortly after his arrival in 2014, bringing in a new deputy among a series of broader changes, Bailey’s role was the only senior position at the central bank that remained untouched.
A new-look FCA
Now at the FCA, Bailey will be aware that he is “going into quite a tough role”, especially in coping with the effects of Brexit, according to Skeet.
He said: “He’s never a man to show excitement, he’s not that kind of person, but it’s legitimate to think he might be excited about the opportunity.”
“I think he has got an extraordinary good feel for the work that he is expected to carry out. Now obviously with a grasp of macroeconomics, he can also see the sense of purpose of his role and the context in which it is being defined. I think he will also see that if there were shortcomings previously, what they might be and how they might have arisen.”
His first four months at the FCA have been busy. In October, the FCA announced ambitious five-year targets to put more women into top jobs and revealed plans to clamp down on restrictive investment banking contracts as part of a 17-month probe into the UK’s corporate and investment banking market. The regulator is also expected to publish its interim report into conduct within the UK’s consulting and fund management sector in November.
A senior banker who has worked with Bailey in recent months as part of an industry lobby group said he expected Bailey to be very “commercial” in his approach in the months ahead.
The London-based banker said: “Post-Brexit, the UK has to think about what it has to stand for. [Bailey] has got a very practical problem on his hands now, which is: is now the time for the UK and the FCA to stand out as being tough at a time when it is already going to be difficult to be in the City post-Brexit? In light of that, he has been increasingly commercial in getting out there, meeting the industry and sounding out the market in a bid to make sense of what people’s red lines are both with respect to Brexit and to how the FCA continues to do what they’re doing.”
He added: “His pragmatism around that has to be quite astute otherwise he becomes a regulator without a business to regulate. It’s a very good time to be listening as opposed to speaking.”
Finding a consensus view in a City divided by Brexit will be no small feat. But City bosses participating in the FCA Mission will find a lead regulator prepared to listen perhaps a little bit more sympathetically and constructively than his predecessors.
One university friend described Bailey as “the kind of [person] you want in troubled times” who was “steady and reliable”.
He added: “I haven’t really heard anybody say bad things about him and that’s quite remarkable in the catty atmosphere of the City.”