MPs have published a new report describing the Financial Conduct Authority (FCA) as “incompetent at best, dishonest at worst” after receiving testimony unearthing poor perception of the regulator.

The All-Party Parliamentary Group (APPG) on Investment Fraud and Fairer Financial Services first launched a Call for Evidence in July 2021 after the financial watchdog was criticised in a series of reports and independent reviews over several high-profile regulatory failures.

The Group has since heard from 175 individuals who have engaged with the FCA other than through the normal course of working in the industry.

Co-chairman of the APPG Bob Blackman CBE MP said that in recent years the Authority has been blamed for "doing too little too late" to prevent or punish alleged wrongdoing following a series of scandals, including the poor handling of the London Capital & Finance and the British Steel Pension Scheme scandal, in which financial services firms have stood accused of mistreating consumers and small businesses.

According to the Group, the testimony it has received reveals "very significant shortcomings" at the regulator, with individuals sharing examples of regulatory failure causing "enormous financial and emotional distress".

It said that even more damning was evidence from current and former employees who have described the company's culture and leadership as "profoundly defective".

"The picture painted is not pretty," wrote Blackman in the report. "The FCA is seen as incompetent at best, dishonest at worst."

He went on to say that the organisation's actions have been "slow and inadequate", while its leaders are "opaque and unaccountable".

The report also said that many individuals which provided testimony said that they did not have confidence that the FCA's ongoing Transformation Programme is making a difference.

"Furthermore, we also know that because as the final stages of this report were being concluded, the FCA has continued to consistently demonstrate that it has failed to shake off the problematic culture that is at the heart of its problems," it added.

The report says that further concerns have arisen since the APPG first called for evidence, including issues relating to Woodford, de-banking, Philips Trust corporation, WealthTek, the Independent Review of Interest Rate Hedging Products by John Swift KC, and the FCA’s own data about whistleblower satisfaction levels

It adds that if the FCA and government do not act urgently to address the concerns and recommendations highlighted in the document, the debate could shift from "reform to either replacement or at least a reapportionment of regulatory functions between existing bodies".

“We sympathise with those who have lost out as a result of wrongdoing in financial services, however we strongly reject the characterisation of the organisation," said an FCA spokesperson. "We have learned from historic issues and transformed as an organisation so we can deliver for consumers, the market and the wider economy."

Charles Kuhn, partner and financial crime specialist at global law firm Clyde & Co, who formerly worked with the FCA’s enforcement and financial crime division, said that the report risks further undermining London's position as a financial centre.

"Businesses deciding whether to set up or stay here are likely to factor in a regulator struggling with leadership and operational issues in their choices," he continued. "Additionally, attracting and retaining high-calibre staff will be a struggle for the FCA if its internal culture continues to be a problem.

"No one wants to work somewhere where staffers complain its culture and leadership are "profoundly defective. A credible, well-functioning regulator is an important part of maintaining trust and stability in the UK's financial system, and this report highlights the urgent need for meaningful reform."

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