The appointment of Andrew Bailey as Mark Carney’s successor at the Bank of England might say something about the Chancellor’s expectations for the economy in 2020. Bailey has for the last three years been the CEO of the Financial Conduct Authority (FCA), but previously worked for three decades at the Bank, and it was this part of his career that Sajid Javid drew attention to in his speech this morning.
“During the financial crisis, he led the teams who were on the front line of the Bank’s response,” Javid said, adding that Bailey “emerged from the most serious crash in living memory with his reputation enhanced”.
That the Chancellor would choose a candidate with a reputation as a steady hand was perhaps inevitable. While Javid recently said the possibility of a no-deal Brexit was “extremely remote”, all but the most dogmatic Brittania Unchained readers acknowledge that leaving the European single market and the customs union and negotiating new trading agreements with the world’s largest economies will have an unpredictable effect on the economy – notwithstanding the effects of the hefty spending promises the Conservatives recently made to the electorate. But is Bailey as safe as he looks?
Bailey’s short tenure at the FCA has not been without incident. Earlier this month, protesters gathered outside the regulator’s head office in east London. The demonstrators were former investors in London Capital and Finance, which offered tempting returns from products that were marketed as fixed-rate ISAs that were actually invested into riskier mini-bonds. The FCA was told about LCF’s mis-selling in November 2015, but failed to act for more than three years. When the company collapsed into administration in April, more than 11,000 people lost savings totalling over £236m.
Bailey’s appointment will not sit well with the 29 MPs from the Conservative, Labour, Liberal Democrat, Democratic Unionist, Scottish National and Green parties who signed an Early Day Motion, in the wake of the LCF scandal, calling for him to “resign for presiding over the biggest financial scandal of recent years”.
Nor was this the only point in his three-year career at the FCA that Bailey’s leadership was questioned. Last year he faced another call to resign from a group representing more than 500 small businesses and sole traders, all of whom claim they were mistreated by the Royal Bank of Scotland’s restructuring group after the 2008 financial crisis. The FCA ordered a report on the scandal, which was delivered in 2016 but not published until June of this year after the regulator was ordered to do so by the Treasury select committee. When the report was finally published, after three years of procrastination, Kevin Hollinrake, the Conservative MP for Thirsk and Malton, described it as “complete whitewash” and a “failure of the regulator to perform its role”.
Still another example of the FCA’s failure to act quickly enough occurred this year in the FCA’s role in another financial scandal, the closure of the Woodford Equity Income Fund. Again, it was found that the regulator had known in November 2017 that Woodford’s fund had broken its rules on liquidity – meaning it contained too many assets that were too difficult to sell – but the FCA was, in the word of the former pensions minister Ros Altmann, “asleep at the wheel”.
When Bailey was once more asked to give evidence to the Treasury select committee, MPs were surprised to hear that the FCA had found out about the lack of liquidity in Woodford’s fund from a news website. “Does anyone in the FCA,” asked Nicky Morgan, “listen to what’s going on in the industry?”
Yet more criticism of the FCA occurred over the watchdog’s role in efforts to get the state-owned Saudi oil giant Aramco to list on the London Stock Exchange. After Bailey personally met with representatives of Saudi Aramco in 2017, the FCA announced plans to relax its rules on allowing companies controlled by sovereign states to list on the London Stock Exchange. The change was criticised by the Institute of Directors and – them again – the Treasury select committee, which said the rule change risked watering down the UK’s reputation for corporate governance.
The FCA’s problems go back further than Bailey’s leadership, and during his time as CEO the body has launched incentives that have promoted the UK’s growing fintech sector. But it’s also fair to say that the FCA has not been entirely turned around over the last three years.
The one sense in which Bailey is defintely the safest choice is politically. He is neither Gerard Lyons (who served as Boris Johnson’s chief economic advisor when the PM was Mayor of London and was almost the only high-profile British economist to openly support Brexit) nor the more globalist Minouche Shafik, who became vice president at the World Bank aged 36.
Still, the appointment is at least a win for diversity; Bailey is the first Andrew to be appointed in a role that has since 1694 been held by 18 men called John, 13 men called William, seven Samuels and five Thomases. The next opportunity for a woman to become the first female governor at the Bank will be in 2028.
And Bailey himself can hardly be questioned in his motives. He is, after all, taking a pay cut of £165,000 – nearly six times the median disposable income for households in the UK – from his FCA salary of £592,000 (with a £68,000 bonus) to a modest £495,000 a year at Threadneedle Street. And just before Christmas, too.
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