I note it has been announced in the press today (12th August) that JP Morgan has appointed Sir Win Bischoff as chairman of its main legal entity in Europe, the Middle East, and Africa. And here was me thinking Sir Win was out of Banking (he retired from Lloyds Banking Group Plc, Bank of Scotland Plc, HBOS Plc and Lloyds Bank Plc, on 3rd April 2014) and into regulation (he became chairman of the Financial Reporting Council (FRC) on 1st May 2014). Then I realised I don’t really know what the FRC does – maybe it’s not a regulator in which case, being a chair at JP Morgan and also at the FRC, might not be the “fox in the chicken coup” scenario it seems.
I know what the FCA (formerly FSA) and the PRA do or purport to do but I’ve never really looked at the FRC. So I did and this is what it says about its role:
The Financial Reporting Council is the UK’s independent regulator responsible for promoting high quality corporate governance and reporting to foster investment. We promote high standards of corporate governance through the UK Corporate Governance Code. We set standards for corporate reporting, audit and actuarial practice and monitor and enforce accounting and auditing standards. We also oversee the regulatory activities of the actuarial profession and the professional accountancy bodies and operate independent disciplinary arrangements for public interest cases involving accountants and actuaries.
So, not necessarily a banking regulator but certainly a ‘bankers mates’ regulator. I looked up who exactly is subject to the FRC rules and regulations and who pays for this organisation?:
The Preparers Levy
By agreement with the Department of Business Innovation and Skills and HM Treasury, the Financial Reporting Council is funded partly through a preparers levy on organisations that are subject to, or have regard to, FRC regulatory requirements in preparing their accounts. Companies and other organisations subject to the Preparers Levy are:
All companies listed on the London Stock Exchange with a Premium or Standard listing. (So it is a banking regulator as well) All UK AIM and ISDX (previously known as PLUS) Market group companies. All large private entities with a turnover of £500m or more Large private subsidiaries of listed companies are invoiced on the same invoice as their parent company. Global Depository Receipt companies. Government Departments and other public sector organisations
Basis for the Preparers: Levy Section 17 of the Companies (Audit, Investigations and Community Enterprise) Act 2004, as amended by Part 44 of the Companies Act 2006, confers a power on the Secretary of Stateto make regulations enabling the FRC to recover its costs through a levy. Thus far, thispower has not been exercised. The FRC’s responsibilities are funded through non statutory arrangements on the basis of an understanding with the groups subject to the levy. However, should a voluntary approach prove unsustainable, the FRC will formally request that the statutory power be invoked.
I’m not too sure exactly what that means. Do any companies pay a ‘levy’ on a voluntary basis?And what are they paying for? To be regulated? To be protected? To be part of the club? Sounds a bit like a Mafia organisation getting in collection money to me. You don’t know exactly what you’re paying for – but they do. It continues:
The 2014/15 levy is made up of a minimum levy of £992 and further amounts payable by companies above a certain threshold, with the rate per £m declining in five levy size bands……
Anyway, whatever it means, what concerns me is the phrase “independent regulator responsible for promoting high quality corporate governance and reporting to foster investment.” In my opinion, the quality of corporate governance at Lloyds Banking Group or any of its affiliate companies, was anything but high quality. And that is fairly self explanatory by the the many and varied accusations levied at LBG. For example, the customer complaints as reported in the Telegraph:
“The ombudsman said Lloyds Banking Group was the most complained-about business group in 2013.” http://www.telegraph.co.uk/finance/personalfinance/money-saving-tips/10674042/Financial-Ombudsman-reports-record-complaints.html
And the latest massive fines levied on LBG for rigging LIBOR:
“The Bank of England (BoE) governor has warned Lloyds Banking Group that “clearly unlawful” conduct over fee manipulation may amount to criminal behaviour as it was fined more than £200m”http://news.sky.com/story/1308901/lloyds-risks-criminal-action-in-rigging-case
Or the way it continues to mistreat its staff and persuade them to mistreat its customers:
“Lloyds is continuing to pressurise staff to mis-sell credit cards, loans and insurance, a leaked email has revealed – just months after the bank was fined £28million for promoting a ruthless sales culture.” http://www.dailymail.co.uk/news/article-2721448/Secret-email-shows-Lloyds-pressures-threatens-staff-sales-just-months-fined-28m-mis-selling.html
And all of that is over and above the number of shareholders and investors waiting to sue Lloyds Banking Group over the merger with HBOS, the rights issue or just ripping them off in general.
I fail to see the logic of making the man who was chair of a clearly dysfunctional bank right up to March 2014, the new chair of an ‘independent’ body responsible for overseeing good ‘corporate governance’ in May 2014. And to top it off, he’s now the chair of a division of JP Morgan whose ‘high standards’ in corporate governance, beggar belief:
“US bank JP Morgan Chase has agreed to a record $13bn (£8bn) settlement with US authorities for misleading investors during the housing crisis. It is the largest settlement ever between the US government and a corporation.
The bank acknowledged it made “serious misrepresentations to the public”, but said it did not violate US laws.” http://www.bbc.co.uk/news/business-25009683
To me, these latest appointments for Sir Win are not just the normal ‘revolving door’ scenario, this time the door has spun off its hinges and is now endlessly spinning at the gateway of La La Land. And, as if this could not get any more illogical, I checked out the other Board members of the FRC and found former members of KPMG and PwC, a managing partner at Clifford Chance, a former MD at JP Morgan, a retired head of E&Y, the Chief Executive of Standard Life and the former Deputy Chair of Barclays, who is now Chair of Legal and General. I kid you not, these are the people who will keep our major companies, corporations and their auditors in check.
Are we ever going to see this madness stop?
And of course I have my own personal reasons for doubting Sir Win’s ability to preserve ethical or high standards. Something to do with the 3 D’s – delay, deny, dilute for 3 years, then a criminal investigation for the next 4 years and a false bank account paying a £1000+ per hour lawyer to ensure (amongst other unethical things) my family were homeless. But that will all come out in the wash.