The committee has published the FCA's own internal audit report summaries, which relate to reports on information system (IS) maintenance, effectiveness of the FCA's Pillar 1 supervision of large firms, the publishing process for the FCA handbook, and health and safety and wellbeing.

The release of the internal audit details has been the subject of some controversy, as MPs originally requested sight of the reports in 2014, amid worries about the effectiveness of the FCA’s own controls.

The request was initially blocked by the FCA’s chair, John Griffith-Jones, on the grounds that the regulator needed a ‘protected space’ in which to work, and shedding a spotlight on what had gone wrong risked altering the behaviour of people in the protected space, making the job more difficult.

Andrew Tyrie, Treasury committee chair, said: ‘The first three years of the FCA’s life have been very difficult, to put it mildly. The regulator has been in “special measures” for some time.

‘In 2014, the committee decided to extend its scrutiny of the FCA to internal audit reports. The regulator’s subsequent extraordinary and incompetent briefing of the press on its plans to investigate the insurance industry reinforced concerns already held by the committee.’

The latest reports relate to summaries of concerns in March 2015, and Tyrie said they raised issues about the level of specialist support for those supervising the wholesale activities of retail banks, and the extent to which the supervision strategy adopted across the largest diverse groups was being challenged.

The internal auditors report says supervisors of large, complex groups in the retail banking sub-division did not have sufficient access to specialist wholesale support required to effectively supervise the wholesale activities of the group. The report says it is unclear whether wholesale specialist teams will have the capacity to provide this support in addition to their other responsibilities.

In addition, the internal auditors found that the firm evaluation (FE) process does not facilitate effective challenge of the supervision strategy adopted across all major business activities of the largest diverse groups to ensure that the supervisory strategy for these activities is appropriate.

‘The committee would expect the FCA’s management to have dealt with these issues.’ Tyrie said. According to the internal audit reports, the FCA’s business technology solutions (BTS) division needs to improve its understanding of costs to maintain systems and its understanding of how compliant the IS estate is with IS maintenance policies. BTS is not clear on exactly how much is spent annually on IS maintenance either for individual systems or in total and is not able to forecast this cost effectively for future years.

The report also reviews the arrangements for the publication of handbooks, which has been tightened up since the premature release of information in 2014, and the FCA’s health and safety compliance. In both areas some minor improvements in process were identified.

Tyrie has also written to Griffith-Jones seeking a further commitment from the regulator not to increase its costs without a clear and adequate explanation to Parliament. This follows a breach of the Parliamentary Commission on Banking Standards’ (PCBS)' recommendation on FCA costs in 2015/16.

Tyrie said: ‘Regulation is sometimes mistakenly taken to be a free good. Consumers end up picking up the tab, either in higher prices or reduced services, or both. So the FCA’s costs need to be kept in check. The PCBS concluded that the FCA should become a smaller, more focussed organisation. The recommendation is as relevant for the FCA now, as it was in 2013.

‘Parliament will expect the FCA to be more transparent about how it attempts to meet the PCBS’ recommendation in future. Regulators should not be exempt from the need to obtain better value for money.’

In his letter, Tyrie said that the FCA should set a timescale to meet the PCBS recommendation that the FCA replicate the Bank of England's stated intention for the Prudential Regulation Authority to operate at a lower cost than its equivalent part of the Financial Services Authority (FSA), excluding what is required to fund new responsibilities.

The letter states: ‘The FCA reduced the cost of its existing activities for 2016/ 17. This process should have begun earlier. In 2015/16 the PCBS recommendation was set aside by the FCA. The FCA board's explanation of its decision to increase the cost of delivering the FCA's existing activities was insubstantial.’

Tyrie goes on to say that the FCA's accounts lack clarity, and that costs resulting from changes in the activities of the FCA and those which result from changes in the cost of pre-existing activities need to be clearly delineated.

He concludes: ‘I would be grateful for an explanation of the board decision to set aside the PCBS's recommendation and for an assurance that the accounts will henceforth enable the costs of pre-existing and new activities be clearly delineated.’

The FCA internal audit summaries are here.

Tyrie’s letter about FCA costs is here.