Q54 Jesse Norman: Mr Wheatley, you may be aware that Lord Grabiner came in front of us recently to give testimony in relation to his review on Forex fixing. Have you seen the video of that hearing?
Martin Wheatley: No, I have not. I have read about the hearing, I have not seen the video.
Q55 Jesse Norman: Could I ask that you review the video and look at the testimony as well for that hearing?
Martin Wheatley: Yes.
Q56 Jesse Norman: Thank you. Just a question on that: if it proves to be the case—as appears possible, if not likely—that Lord Grabiner erred in not identifying further cause for criticism of Mr Mallett, who was the chief dealer, would that itself be potentially a cause of concern or investigation by the FCA?
Martin Wheatley: No—
Jesse Norman: In other words, if he was genuinely criticised for failing to take action on a clear indication of market manipulation.
Martin Wheatley: Again, just to be very clear, neither the bank nor the individual are persons regulated by the FCA, so it is not within FCA jurisdiction. I understand the concerns that the Committee had as to whether they received a full outcome. We co-operated with Mr Grabiner and provided as much information as possible. But it is not our review and it would not be our review, even if he had made mistakes in his final conclusions.
Q57 Jesse Norman: For the avoidance of doubt, who would be exercising that independent scrutiny of Mr Mallett under these circumstances, if not you?
Martin Wheatley: The bank itself, and the Court of the bank.
Q58 Jesse Norman: That is very kind and confirms what I think the understanding of the Committee was.
I wonder if I may turn to a question relating to an issue that has been in front of the Committee for some time. Mr Wheatley, at my suggestion and the suggestion of others, the Chairman wrote to you in relation to concerns about the levying of charges by HSBC on consumer credit cards, raised by a whistleblower called Nicholas Wilson. You responded on 3 February with a letter that I have only just seen—it has only just been circulated to the Committee—and I want to ask you about that.
If you recall the case, Mr Wilson, who had been acting for a firm of solicitors, discovered that HFC, an HSBC subsidiary, had been levying these charges and blew the whistle on it. Mr Wilson believes that the amounts of money involved may be hundreds of millions of pounds or potentially more than that, given that tens or even hundreds of thousands of people may be affected by these charges. In the course of that it emerged that DG Solicitors, which was the internal firm of solicitors—as it was suggested by HSBC—was not in fact a firm of solicitors. The Solicitors Regulatory Authority confirmed that, contrary to their claim, this was not a firm of solicitors located within HSBC itself. It also became clear, in the course of the FCA’s responses to Mr Wilson and those around him, that the FCA had on one occasion at least copied and pasted a piece of text from HSBC into one of its responses. You are aware of this?
Martin Wheatley: Yes.
Q59 Jesse Norman: When this was raised with the complaints person within the FCA, Michelle Broadhurst, she responded by acknowledging that that had happened without any particular apology or acknowledgement of culpability. But you would accept that copying and pasting bank text into FCA responses to formal requests of information or help is not an attractive piece of behaviour?
Martin Wheatley: It certainly would look odd and it gives a very poor impression. I do not know exactly the circumstances on which, as you say, copying and pasting happens.
Q60 Jesse Norman: It would be an embarrassment to you, though, to have that.
Martin Wheatley: Yes.
Q61 Jesse Norman: That is what I thought; thank you for that. In the course of the response, HSBC said to someone who had enquired about this that the agreements that had been reached with customers gave HSBC and its subsidiary or operating arm, HFC, the right to levy these charges, and that the fee was added after the customer had defaulted on the loan credit card payments. It was subsequently discovered that these agreements did not contain that provision and, therefore, this was untrue. It was knowingly untrue. HSBC had, in effect, lied to someone asking a question by saying that these agreements gave HFC the right when in fact it did not have the right to levy those charges.
Martin Wheatley: Yes.
Q62 Jesse Norman: Then what happened was the OFT got involved. In the FCA’s response from Karina McTeague dated 3 February—which we have just received—Ms McTeague says that the OFT then took action on the imposed requirements, including that HFC ensure that its collection charges are set at an amount that allowed it to recover no more than the actual necessary cost it reasonably incurred rather than, as had been the case, levying charges irrespective of any actual legal proceedings or cost incurred in recovery.
Martin Wheatley: Yes.
Q63 Jesse Norman: You will be aware of that. You, or rather Ms McTeague—you collectively—have said, “In light of the regulatory intervention by the OFT in 2010 and other factors we do not currently intend to take further action on this”. So from Ms McTeague’s standpoint, from the FCA’s standpoint, the fact the OFT acted on this in 2010 relieves you of any responsibility to take action.
Martin Wheatley: The events happened before we had the responsibility for consumer credit.
Q64 Jesse Norman: It is true, is it not, that duties have passed to you, having been given up by the OFT in relation to those areas?
Martin Wheatley: Yes.
Q65 Jesse Norman: Of course the FSA, your predecessor body, was certainly in place at that point and the general principle has been that you have taken over there.
Martin Wheatley: Yes.
Q66 Jesse Norman: The question is this: did OFT assess any issue of illegality when it made its enquiries?
Martin Wheatley: Any question of legality?
Jesse Norman: Illegality.
Martin Wheatley: Clearly, the fact that they required that HFC stop making these collections is indicative that they thought the collections were inappropriate. As far as I am aware, they did not take action on redress and there were no suggestions of fraud, which I assume they would turn their attention to whether there was or not. But given that they took the view that the behaviour stopped in 2010 and, as far as I am aware, there was no fraud investigation, from my point of view that was the end of that issue. It is not something that the FCA would reopen.
Q67 Jesse Norman: I understand. So they did not assess the issue of illegality. They merely sought to stop the behaviour that they thought was in breach of the rules. They did not address the question of prior losses that had been incurred but you yourself would accept the principle, would you not—which you have adopted very much elsewhere—that prior losses should be recovered in cases where detriment has occurred? That is, after all, the principle you have been using with all these other cases.
Martin Wheatley: Yes, and that would be—absent applying retrospective regulation, which is something we are very cautious about, we would look at redress if fault occurred under the set of rules that we have inherited or taken on. It would not be clear in this case that we would not be acting retrospectively if we had applied our current redress philosophy to breaches under the OFT rules.
Q68 Jesse Norman: So your principles in this area are three, are they not: a person should not benefit from regulatory breach; there are firm individuals who should be penalised for wrongdoing; and financial penalties should be sufficient to deter the person who committed the breach from committing further breaches?
Martin Wheatley: Yes.
Q69 Jesse Norman: What I want to probe quickly is whether you have discharged your obligations in those areas as the FCA. In the response that we received, Ms McTeague says, “The focus of our regulatory interest will be whether the subject matter of the complaint is a convention of regulatory standards”—we accept it clearly is a convention of regulatory standards; that is true—“to which a range of supervisory and enforcement powers applies”. These are carried over from the FSA and the FSA clearly had powers in this area, did it not?
Martin Wheatley: No, I do not think it did. On the question of whether our supervisory or enforcement powers would apply, our judgment is that they would not.
Q70 Jesse Norman: She also says, “We would consider the quality of evidence to support the complaint”. What checks were made by the FCA to assess whether or not there was evidence to support the complaint?
Martin Wheatley: We would have looked at the file. We would have looked at the evidence gathered. We would not have gone and done a de novo investigation to gather evidence unless we felt, prima facie, that there was a case for bringing an investigation forward. Based on the OFT’s conclusion and the fact that there was no fraud action taken, we took a view that there was not a prima facie case for us to intervene.
Chair: We will have to move on in a moment, Jesse, so if you just ask one more question.
Jesse Norman: No, I have a couple more questions, Chairman.
Chair: You had better ask them both together then, because we are going to run very short of time.
Jesse Norman: Way less time than you have given to Mr Garnier, Chairman, and this is a very important issue that I have been pursuing with the Chairman for some months now, so I would appreciate a couple more questions.
Chair: It is a very important issue, and please ask your remaining couple of questions.
Jesse Norman: Fewer interruptions would assist me in doing so.
Chair: Just get on with it, Jesse.
Q71 Jesse Norman: Thank you, Chairman. The question on this now is: that is not an issue of fraud, so I want to put in a formal request that the FCA make some assessment of what the detriment has been—an independent analysis of its own as to what detriment there has been and how many hundreds or potentially thousands of customers may have been affected. But there is also the further question: what happens to the individuals concerned who may now have left HSBC or may now have left HFC? You do clearly have powers in that area. If you so determined, you could decide that the individuals responsible for these fines, which have been determined to be not compliant with variable rules—which we know have been found to be unlawfully received or levied—should be pursued in their new careers and potentially be subject to some form of restriction on whether they are able to practice in financial markets now. That is perfectly within your power, in addition to potential fraud, is it not?
Martin Wheatley: Fraud is not within our power. It is within our power—
Q72 Jesse Norman: No, it is in your power. It is clearly within your power. It is just that you delegate it to other people.
Chair: We have to move on very shortly. Is it within your power or not?
Martin Wheatley: We are not the authority for prosecuting fraud.
Q73 Jesse Norman: That is a partial statement of the case. I am now pursuing the question of the individuals concerned.
Martin Wheatley: Yes, and if the individuals concerned were, in our judgment, not fit and proper then we can take action to prohibit individuals from the industry, but there is a high bar to take that action. You asked if we would do an assessment of the detriment; the answer is no, we would not. We have taken the decision on this case that there is no further action for us to take. We have a multitude of other calls on our resources and it would be disproportionate for us to call over something that was concluded in 2010 by the OFT with no further action at that point.
Jesse Norman: Well, I am speechless. Thank you for that.