The acting head of the Financial Conduct Authority, the UK’s financial watchdog, yesterday denied “going soft” on the banks after the regulator shelved three high-profile probes into the banking industry in the space of a week. But, is it fair to accuse the City watchdog of a cover-up, as some have suggested?

On New Year's eve the FCA, headed up by interim chief executive Tracey McDermott, quietly shelved a probe into bank culture. It also said it would not publish the findings of an inquiry into incentive structures for financial product sales staff and announced it would take no action against HSBC for helping wealthy clients dodge tax in Swiss banks owned by HSBC.

The change of tack by the FCA is in marked contrast to the belligerent approach of its previous chief executive Martin Wheatley, who famously said that his crackdown on the UK’s scandal-hit banks would involve “shooting first and asking questions later”.

Wheatley made the comment shortly after being appointed by Chancellor George Osborne to become the FCA’s first chief executive in 2013.

Under Wheatley’s tenure the FCA gained a reputation for its tough approach to the banks, which led to record fines being imposed on them for misdemeanours before, during and after the financial crash. These include fines for various mis-selling scandals, the manipulation of the Libor interest rate and the manipulation of foreign exchange markets. But last summer, after a botched leak by the FCA of an impending investigation into pensions and insurance policies, Wheatley’s contract was not renewed at Osborne’s behest.

While Osborne accused the FCA of undermining the “UK’s reputation for regulatory stability and competence”, it was widely thought that the real reason for Wheatley’s sacking was the government’s wish to draw a line under the era of “banker bashing”.

However, McDermott yesterday cited the FCA’s continued stance on Libor, foreign exchange trading, and the £72 million fine of Barclays over its handling of financial crime risks, as examples of how the watchdog is still taking a hard line.

“If you look at what I’ve been doing in the last six months since I’ve been in the role as chief executive you’ll see that we have continued to take action against the industry,” she said.

However, Colin McLean, managing director of Edinburgh-based investment house SVM, told the Sunday Herald the decision to shelve the various probes was a “pragmatic response” to the fact that, since last May’s general election, the political landscape had changed. As the government prepares to sell its controlling stake in RBS, it makes sense for the government to engage in a more constructive relationship with the industry, McLean believes.

“It is clear that there has been increasing regulatory forbearance over the last few months,” he said. “I suspect that the FCA has bent to the wind with a recognition that Wheatley’s aggressive stance was not helping and that we are now entering a period of Realpolitik. Banks will now take their cue from the government that the regime has softened over the last year.

“It would be career suicide for the FCA to run against the political will of the government as Osborne makes the appointments. For the most part the lid has been lifted on a lot of areas of banking activity over the last few years. I don’t think we will get much further if they had continued with the previous approach.”

Over the summer, as HSBC was threatening to relocate its headquarters abroad, Osborne announced that the bank levy – introduced after the financial crisis and much despised by bankers – would be gradually cut. In a further sign that it wanted to build bridges with the UK’s powerful financial sector, the government in October announced it would impose a two-year time limit on compensation claims for mis-sold payment protection insurance.

The move was widely welcomed by the banks who have had to set aside more than £26 billion in compensation in recent years to cover claims for unnecessary insurance on personal loans.

The abandoning of the probe into bank culture last week raised the ire of MPs who have summoned the FCA to appear before the Treasury select committee to explain its “odd” decision.

With opposition MPs claiming that the supposedly independent watchdog is succumbing to pressure from the government to soften its approach to the banks, Andrew Tyrie, the committee’s chairman, said that the FCA is giving the impression of a “weakening of resolve”.

Shadow Chancellor John McDonnell, meanwhile, said that it appeared that the government has now called time on the era of banker-bashing and that the FCA was now “almost rudderless”.

RECENT FCA PROBES THAT HAVE BEEN SHELVED OR WATERED DOWN

· The abandoned probe into bank culture that formed part of the FCA’s 2015 business plan aimed to investigate how pay drives behaviour in the industry. When the inquiry was shelved just after Christmas the FCA said that, while it remains committed to improving the culture and behaviour of banks, it wants to work individually, directly and privately with the banks.

· A report into the incentives given to financial advisers for investment advice will not now be published. The investigation had been launched on the back of fines being handed to banks for mis-selling risky stock market investments, often to the elderly, and allegations that financial advisers were being ‘bribed’ to sell products.

· Last week the watchdog said it would take no action following a two-year investigation into allegations that HSBC’s Swiss arm had helped rich clients avoid tax. Bank account details leaked last year showed how customers were helped to avoid taxes by concealing assets.

· A report published by the FCA in November into failings at HBOS, which was bailed out during the financial crisis after merging with Lloyds, was criticised for redacting the names of watchdog staff who attended meetings around the time of the bank’s near collapse.

· The FCA was also last year criticised for not punishing bankers involved in the HBOS scandal. Although around ten former HBOS employees face being banned from working in the City, limitation rules do not currently allow fines to be handed down for events that occurred more than six years ago.