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FCA gives up fight to keep internal audit files out of public eye

by: Samantha Partington
  • 30/03/2015
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The Financial Conduct Authority (FCA) has given up its fight to keep its internal audit records hidden from public scrutiny more than a year after the first request came from the Treasury Committee.

In a letter to Andrew Tyrie, the Treasury committee’s chairman, John Griffith-Jones, FCA chairman, said despite the board remaining anxious about disclosing the records he would turn them over one year after they had been viewed by the Audit Committee.

But Griffith-Jones said the records would be redacted to hide information about specific firms and any other data which was considered not to be in the public interest to disclose. He said the FCA would use the Freedom of Information (FOI) rules to decide what information could be left out.

In Tyrie’s reply to the FCA he said that while he was glad the regulator had finally decided to co-operate it could not use FOI rules to decide what could be hidden from public view. He said readactions would more than likely be assessed and approved by the Treasury Committee on their individual circumstances.

The request for the FCA’s internal audit reports to be available to public scrutiny was first made by Tyrie on 4 February 2014 at which time Griffith-Jones said he would have to ‘take a rain check on that one’, a request denied by Tyrie.

“I think you can take a rain check on a discussion with me about whether any redactions may be necessary. But if you are telling me you want a rain check on whether they can be supplied to the committee, I think there will be a major problem,” he said.

The following month in a letter to Tyrie, Griffith-Jones said after a discussion with the board and the executive team the FCA had decided sharing its internal audit reports would compromise its effectiveness and wouldn’t be in the public’s interest.

The regulator described its internal audit functions as the FCA’s third line of defence. The watchdog said for robust challenges of its internal processes to take place, a ‘protected space for debate’ needed to exist. Griffith-Jones argued that to open up records of these challenges to ‘political scrutiny’ would put those processes at risk.

The fear at the time was that if MPs were able to look at the records, staff would become defensive about taking part in challenging the FCA’s structure and if staff watered down their responses, opening up the record to public scrutiny would produce counterproductive consequences.

The FCA also raised a concern that releasing details about its process and IT systems could encourage people with malicious intent to try and exploit any perceived weaknesses.

During a session on 9 September 2014, John Thurso, the Liberal Democrat MP for Caithness, Sutherland and Easter Ross, raised the point again with Griffith-Jones at which point the FCA chairman begged the committee to allow the FCA to work within a protected space.

The FCA made its concession on 26 March this year, more than a year after the initial request made by the government which, in a statement released by today, Tyrie said suggested ‘broader problems at the FCA’.

“The FCA’s undertaking to publish copies of its internal audit reports is welcome. Still, obtaining it took many requests and a year’s persistent pressure from the committee.

“As we can see from both the Davis report and the Treasury Committee’s recently published report, the FCA has a lot of work to do. The evidence from this episode suggests that there may be broader problems at the FCA, which range far wider than points of process and procedure. These include the FCA’s communication methods, possible poor working relationships between divisions, the board’s effectiveness, and insufficient focus by its staff on the FCA’s objectives, among other things.

“The publication of these internal audit reports will better enable Parliament and the public to follow the FCA’s progress in resolving these issues, and in increasing its effectiveness.”

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