Andrew Bailey, the CEO of the UK’s Financial Conduct Authority (FCA), this week laid out his thoughts on the future of financial conduct regulation – outlining a series of bold statements regarding the importance of risk-taking and competition, the benefits of a minimum regulation environment, and the challenges of equivalence with the EU that could see the UK move in a very different direction post-Brexit.
Almost uniquely among financial regulators, the FCA has a specific objective to promote competition in the interests of consumers, and Bailey emphasised the centrality of this to the FCA approach – a point that should reassure institutions apprehensive about the ever-increasing regulatory burden. “Advancing the public interest does not mean that we have no interest in corporate health and profitability. Healthy competition depends on firms earning returns on the investment made. And, in fact, our governing legislation already tells us that we should take into account the desirability of sustainable economic growth in the UK.”
The UK will continue to be an active member of ESMA and work closely with its EU27 counterparts on legislation that is already in development while the UK negotiates its departure – and Bailey stressed that the relationship would remain close. However, he also highlighted the differences between the UK and EU approach to regulation – suggesting that the UK could make a radical break from previous tradition and move towards a potentially less invasive approach to oversight.
Over the years, the EU has moved from a system which sets minimum standards of regulation (the world of minimum harmonised directives) to one filled with standards that are both minimum and maximum (the world of maximum harmonised regulation and directives) – a change which Bailey acknowledged could be “intrusive at the national level,” although it has undeniably played a valuable role in ensuring a level playing field and facilitating supervisory cooperation across the EU market.
However: “Left to our own devices, I think the UK regulatory system would evolve somewhat differently,” he confirmed. This would be likely to incorporate a more principles-based approach, taking on board practical experience and focusing less on detailed rules and regulations, which can drive fragmentation in markets.
“I see rules as a means to deliver outcomes, and it is important not to focus too much on rules as the beginning and end of the process of regulation,” he said. “Outcomes matter at the end of the day… rules are a means to deliver them, but not the only one.”
Based on Bailey’s comments, it looks as if the UK post-Brexit could move in a rather different direction – towards a financial system that focuses on sustainable and transparent returns based on fair and regulated risk, without undue oversight or excessive box-ticking. “There should be a debate about the future of regulation,” concluded Bailey. This debate, assuming it includes the opinions of affected institutions and stakeholders, has the potential to provide much-needed relief for institutions already struggling under an immense regulatory burden.
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