LONDON (Reuters) - Britain has chosen Andrew Bailey, a Bank of England deputy governor, to lead its financial industry watchdog and strike a balance between restoring confidence in banks and asserting the independence of the embattled regulator.
Bailey's appointment as chief executive of the Financial Conduct Authority (FCA) followed a worldwide search to replace Martin Wheatley, who took a tough approach to overseeing bankers before he was ousted last year by finance minister George Osborne.
Bankers welcomed the appointment of Bailey, who has worked for the last 30 years in various posts at the Bank of England and was described on Tuesday by Osborne as the "most respected, most experienced and most qualified person in the world" for his new job.
Bailey is a familiar face after recent upheavals at the regulator, which have damaged morale and raised concerns about the fledgling FCA's independence.
"Recent developments have shown that the most pressing issue in the system right now is the need for stable leadership at the FCA," Bailey said in a statement on Tuesday.
A British vote to leave the European Union in a referendum on membership expected this year would also present big challenges to the FCA, which regulates the bloc's biggest financial centre and whose rules are written in Brussels.
Wheatley was ousted after Osborne pledged to seek a "new settlement" with London's financial district after years of banking scandals, such as the mis-selling of payment protection insurance and financial benchmark rigging, in the wake of the 2007-09 financial crisis.
Bailey, who comes armed with regulatory experience, a proven track record and is respected in Britain and elsewhere, currently heads the BoE's Prudential Regulation Authority (PRA), the central bank's banking supervisory arm.
"Andrew Bailey has shown exceptional leadership at the Prudential Regulation Authority, and has worked hard with the industry to ensure we have a stable banking sector that serves the needs of customers and the wider economy," said Anthony Browne, chief executive of the BBA bank lobby group.
John Mann, a member of parliament's Treasury Select Committee (TSC) for the opposition Labour party, alleged that appointing Bailey showed that Osborne had downgraded consumer interests at the FCA and all.
The committee's chairman, Andrew Tyrie, said the perception that the FCA was vulnerable to political pressure was not helping the watchdog do its work, and parliament should be given a veto over senior jobs at the FCA and PRA in future.
Simon Morris, a financial services partner with law firm CMS, said Bailey's appointment made perfect sense.
"It strengthens the FCA and is an elegant way of dealing with the fact that there is no longer a role for an autonomous chief executive of the PRA," he said.
John Ahern, a partner at Jones Day law firm, said Bailey is more centrist than his predecessor.
"Bank-bashing will likely give way to constructive regulatory oversight of the industry on his watch."
Bailey signalled a triumph of old-fashioned relationship building with bank CEOs over headline grabbing fines and enforcement, added Rob Moulton of law firm Ashurst.
Osborne said the appointment was an important step in establishing the FCA as a "strong regulator, independent of government and industry".
One insider dismissed suggestions the move amounted to a BoE takeover, noting Bailey's experience as an FCA board member since 2013 and his engagement with British regulatory strategy.
Bailey was only approached after Tracey McDermott, who had temporarily filled the post since September, pulled out of the running, one source familiar with the process said.
McDermott will remain as interim CEO until Bailey's replacement at the BoE has been found and he moves to the FCA.
"Although it had not been my intention to leave the PRA during my term as CEO, a job that I enjoy enormously, it is a great honour to have been asked by the Chancellor to take on the job of FCA CEO," Bailey said.
The FCA has come under intense political pressure since McDermott ditched a review into culture at banks late last year, raising concerns that it had given in to government pressure.
Bailey's appointment highlights how central bankers have become dominant in banking regulation since the financial crisis. Some market regulators have said too much emphasis has been placed on reducing risk via higher capital requirements.
Additional reporting by William James; Writing by Kirstin Ridley; Editing by Alexander Smith, Greg Mahlich