Partner Bambos Tsiattalou discusses the Financial Conduct Authority (FCA) and its proposed radical change to the regulation system.
Bambos’ article was published in The Times, 8 November 2019, and can be found here.
Against the backdrop of an imminent general election, important developments elsewhere are inevitably marginalised by the media. In the context of what a post-Brexit world means for financial services, senior figures in the Financial Conduct Authority (FCA) have recently made a series of speeches that endeavour to underpin the regulator’s role. Perhaps understandably, they have largely gone unreported.
Most of these speeches confirm the status quo. At the Lord Mayor’s banquet in October, the FCA chief executive Andrew Bailey reassured his audience by giving a strong endorsement of free trade and open global financial markets, confirming that the FCA will continue to support them. Meanwhile the FCA’s executive director International, Nausicaa Delfas, has also spoken repeatedly about what needs to be done, post-Brexit, for the UK to retain its preeminent position. All fair and good, but not exactly the stuff of headlines.
Much more significant was a recent speech entitled ‘Regulation in a changing world’ by Christopher Woolard, the FCA’s executive director of strategy and competition. He addressed two key themes: ‘The FCA asks itself if its regulatory model is still the right one, and if it’s ready to respond to the changes we see coming down the track,’ and ‘In deciding on the future of regulation, the first step is agreeing the outcomes in the market to be achieved.’
The speech included an announcement that the FCA is considering a comprehensive review that would cover all financial services regulations. Woolard’s words are newsworthy because he was quietly conceding that the regulator needs root and branch reform in its outlook, albeit those were not his exact words.
To achieve this, he suggests that the FCA plans to move beyond straightforward compliance, deploying various sets of rules, towards a system that is instead focused on outcomes. In future, the emphasis will be to tackle problems holistically. As Woolard put it: ‘This boils down to one simple question: what outcomes do we want from financial services?’ He concluded: ‘By putting outcomes at the heart of the debate in the coming months we want to ensure financial services markets serve the public interest, now and in the long term.’
However, Woolard’s argument is open to question. The notion that the FCA intends to move towards a system based on results should not be viewed as novel. In truth, it is no more than peacocking. One could argue that it is somewhat ridiculous that a financial authority feels the need to announce that their strategy is based on empirical evidence. That must already be, or should be, an integral part of its raison d’être. To suggest otherwise is an admission by the FCA that it has consistently fallen short of what it should have been doing.
More importantly, until the UK knows what it is doing, whether it is leaving the EU with or without a deal (or indeed leaving the EU at all) the FCA is in no position to propose any meaningful change.