Compliance

GUEST ANALYSIS: Adamson Finally Leaves UK Financial Regulator

Chris Hamblin, Editor Compliance Matters, London, 7 January 2015

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Clive Adamson, head of supervision at the Financial Conduct Authority, the UK regulator, has left the post, according to weekend changes on the regulator's website. This article examines the case.

This item is by Chris Hamblin, editor of Compliance Matters and Offshore Red, sister publications to this one. To view an earlier article about the issues raised by recent events at the FCA, see here.)

Clive Adamson, the under-fire head of supervision at the Financial Conduct Authority, the UK regulator, has quietly slipped away from his post, according to weekend changes on the regulator's website.

As this publication has predicted, Tracey McDermott has moved from the enforcement area to fill Adamson's shoes. Georgina Philippou has taken over the enforcement brief temporarily as a holding operation while chief executive Martin Wheatley does his best to recruit Mark Stewart, the executive director of and head of enforcement at the Hong Kong Securities and Futures Commission, to move over to the UK. Stewart is only likely to agree in exchange for a princely sum.

Adamson's humiliation began in January last year in front of the UK House of Commons Treasury Select Committee, which is appointed by lawmakers to investigate goings-on at the Treasury and, among other bodies, the FCA. Jesse Norman MP grilled Adamson about his decision in 2010 to appoint the Rev Paul Flowers, the “crystal Methodist” who nearly bankrupted Co-Op Bank while Flowers was reportedly taking drugs. The conversation went like this:

Norman: "You failed to detect his unsuitability. You let him through and Mr Hardie, who was one of the people evaluating Mr Flowers, then goes to work as a non-executive director of that institution. That is a question. I am wondering if you are going to say 'yes' or 'no' to that."

Adamson: "That is factually correct."

Norman: "Do you approve of this revolving door in this case?"

Adamson: "I think it is quite acceptable, particularly as Mr Hardie’s role was as a senior advisor. He was not a member of the executive. I believe he stepped down from his role before he was appointed as a non-executive director of the Co-Op."

Norman: "You do not detect any possibility of a conflict of interest there, that somehow a person who has been in judgment on Mr Flowers might then be taken on to this institution almost certainly at the behest of Mr Flowers?"

Adamson: "There is always a risk of a conflict of interest as people move from the regulator to the regulated. We are very careful about managing those conflicts..."

Jesse Norman: "It seems to me the problem is this. Either you saw that Flowers was financially incompetent or you did not."

Adamson: "We did."

Norman: "Which was it? You saw that he was financially incompetent?"

Adamson: "As I said earlier, we agreed with him and he agreed himself that he did not have sufficient banking experience."

Norman: "Good, okay. The way you attempt to handle this is by putting in place safeguards, notably Mr Baker-Bates and Mr Davies on the board as the financially competent people. You say, `This man is incompetent but the good news is we have some financially competent people on the board alongside him’, except it turns out that on the one substantive issue where their financial competence is clearly called into play and on which they disagree, in a context in which boards very rarely are allowed to maintain disagreements, in which unanimity is generally required for a decision to be taken, they did not agree. This did not raise any alarm bells because you did not know about it. In other words, the system that you created to guard against the incompetence of Mr Flowers spectacularly failed as well."

Clive Adamson: "I do not quite agree with that. As I said earlier, the issues that Mr Baker-Bates raised were precisely the issues that we wanted satisfaction about before we would consider the merger."

Jesse Norman: "I am sorry, could you repeat that?"

Clive Adamson: "The issues that Mr Baker-Bates raised about the capacity of the firm to take on something else were precisely the issues that were raised with the firm that both regulators would need to be satisfied about to consider that merger."

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