Regulation in a Changing World
7 November 2019: Chris Woolard, Executive Director of Competition and Strategy at the UK Financial Conduct Authority, gave a futuristic speech at the Future of Regulation conference in London on 21 October. He questions whether FCA is using the right model for the times. He states that the right outcomes for the market and for financial service provision need to be agreed. Ultimately, everyone wants the financial system, and those working in it, to be trustworthy.
He calls out the fact that the rules of the game have changed in the last 10 years since the financial crisis, especially the unwritten rules (user expectations of financial services firms). He states the FCA wants to know what rules will best deliver the right outcomes for consumers today and tomorrow.
Woolard bemoans the general situation we are in where consumers face a low interest-rate environment demanding higher risk investment with little place to turn for proper financial advice that is not value for money, but multiple complex issues to consider. He focuses on the steady de-regulation of pensions and the risk that has magnified. He lays down various views on how we got to this state and what some believe were the origins of this demise, without falling on any one conclusion. And the final outcome he lays down, is that currently the consumer now has more access to higher-risk, higher-return products but generally lacks the sophistication to understand them.
The above is the backdrop to the big question – the future of regulation? He says the current rules are outdated. The obvious move is from narrow compliance to a focus on better outcomes. Woolard says that this transition has already begun at FCA, and the Sector Views and Business Plan for 2020 will reflect this new focus on outcomes. He states that the regulators’ common approach to using disclosure for the last 20 years has been challenged by behavioural economics. Regulatory cost analysis is key and while disclosure is regulation-light, a more interventionist approach might be needed to tackle root causes.
Consumers don’t care if a set of rules has been followed; they care what outcome they received. Consumers also don’t care if the problem lies with legislation, regulation or industry practice – they want all to be in their interest. So FCA is going to work more with Government, the ICO and other enforcement agencies, to get the best outcomes rather than thinking narrowly and in a silo about their own mandates.
FCA is also going to examine its requirements so they are easier to understand and comply with, especially for smaller firms. The rules, Handbook, Principles and technical standards will all be considered. The Principles, in particular, will face a review. Clarity and understanding is the hoped for outcome.
FCA is aiming for agile regulation that does not become outdated fast as domestic and global markets evolve, resulting in inefficiencies and more risk and harm for consumers. Watch this space.