The FCA’s increase in regulatory rules has failed to prevent misconduct, says chairman John Griffith-Jones.
In a speech at the Cass Business School in London yesterday, Griffith-Jones said more rules can create greater complexity, and that he believes “less is more”.
He said: “The FCA has 11 principles, and probably 11,000 detailed rules. It is a fact that in all the major enforcement cases that it has successfully taken over the past five years, the breach committed related directly to one of the 11 principles. As far as I am concerned, the principles are therefore here to stay.
“The question is how many rules do we need as well? I instinctively believe that less is more, on the twin grounds that a) we have made a great many rules already but they don’t seem to prevent further problems arising, and b) what starts as an attempt to provide clarity frequently ends up creating complexity.”
Griffith-Jones added that while it is difficult to change the existing rule book, the regulator will introduce fewer new rules as firms’ behaviour improves.
He said: “We are where we are, with a rule book that looks a bit like layers of sedimentary rock, eminently explicable as to how it got there, and extremely hard work to change radically.
“We shall have to live with that for now, particularly as we have to add to it the steady stream of European directives and regulations as they are introduced.
“As to the future, I would like to believe that the improvement in conduct will move inversely with the quantity of new rules in areas that we already regulate.”
He said the FCA is facing the challenge of making its forward-looking strategy a success in reality.
He said: “What we have found is that the earlier or more actively we intervene, the more judgements we have to make. We find ourselves making some on balance decisions, which then meet hostility amongst those who believe themselves to be incorrectly or unfairly treated by our actions.
“Nonetheless I maintain that this is the better way to proceed.”
Griffith-Jones said another challenge for the FCA is that genuine culture change within firms takes time.
He said: “Pending culture change, firms may need more rules and controls rather than less in order to ensure good behaviour at the customer interface.
“So we are now in that ‘exposed’ period where the words and the actions are not always in sync. Given the lack of trust that remains there is always the danger that the demand for ‘something more to be done’ becomes unstoppable just as the need for it begins to diminish.”
He concluded: “We regulators have a big job ahead of us, but modest as compared to the changes required of some of the firms we regulate.
“Their future behaviour will shape the future of regulation, and over time they will get, from Parliament, the regime they merit.”