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FCA chairman: Increase in rules has failed to stem regulatory problems

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.”


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There are 18 comments at the moment, we would love to hear your opinion too.

  1. Less regulation definitely works.

    So, if the FCA just picked up its expensive works or art and a few chairs and trundled off to pastures anew we’d all be better off

  2. To regulate human behaviour is almost impossible, The bad will always find a way to be bad and the good will always try to do the right thing and end up paying the price in so many ways for the behaviour of the bad It would have been much simpler to regulate the products and to profile every regulated product to identify who it might be suitable for. The adviser would the know that if he sold a particular product to the wrong kind of client he would need to justify the departure. Good educational standards should do the rest

  3. Only 11,000 rules….phew!! I was worried they were going to add a couple more….but I’m sure the industry can dedicate a little more time and money towards implementing a few more rules after IFA’s and smaller companies have seen their one and only client!!…the decimation of the industry I have dedicated the majority of my working life towards is unforgivable in my eyes….Mr Osborne, if you are listening, it’s time for a change as the current chief’s are not fit for purpose anymore

  4. Less is more. Those that break the rules don’t abide by the rules so the amount of ridiculous bureaucracy that is pumped out is totally ineffective. All this does is make the life of the good so much harder plus push up costs for the clients to boot. Change of plan needed?

  5. Or perhaps we recognise that masses of regulation are a poor substitute for personal responsibility and a moral compass.

    The reputation of the City of London was of a market totally devoid of regulation but with a very strong view of its own integrity. That and the fairness of English law built the city up to what it has become.

    The current market with LIBOR boys fleecing the market whilst playing to the regulator’s whistle is the very way the UK will lose its predominance.

    By definition the regulator is perpetually behind the ball as it cant regulate something until its happened.

    Add to this an unwillingness to upset the powerful and you end up with a twisted system.

    There is no point in having either principles or rules of you do not enforce them

    What greater examples do we need of a sick market than the level of bankers bonuses or insurance companies selling accident data to ambulance chasers

    All the TCF principles in the world seem not to deal with some very obvious abuses.

  6. Lightbulb moment?

    Misconduct is perpetrated by people who ignore the rules and have little time for ethics. Adding more rules just gives more cover to these people and makes it more difficult for those trying to do the right thing. Oh, and it exponentially increases costs for clients too – don’t forget they pay for regulation.

    It’s much, much easier to write new rules ‘to make things better’ than devote extra resources to catching and removing the miscreants before things get out of hand. It’s great to see the FCA using its intervention powers over CoCos and that gives some hope for the future. But will they be prepared to intervene where a finer judgement is required? PPI is a great example of a situation where everyone (including the regulator) knew there was a problem as early as 2004 to my certain knowledge but it was allowed to perpetuate for many years before action was taken. Could that happen again?

    I read with interest the comment “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.”

    Really? GIven that all rules are derived from the principles if that wasn’t the case then there wouldn’t be a breach. In addition, it is almost impossible for a firm to argue against a breach of a principle but much easier on a specific rule. It follows that the regulator will always quote a breach of a pinciple. In fact I don’t recall reading a final notice where that hasn’t happened.

    Overall this is good news in terms of recognising the issue. It’s a much bigger step to start putting it right and may be impossible given it goes against the European trend and would be politically difficult. If there’s one thing we have learned from all the past crises, it’s far more important to governments and politicians to be seen to do smething than do the right thing. It’s hard to address real issues and tackle root causes and wouldn’t be popular. We’ll see if anything comes of this but let’s not get too excited, after all, regulators are human too…

  7. Why do these people just make me want to weep? Go and do something useful with your life please and leave us to get on with ours. It’s proved that regulation has failed.

  8. It may be prudent to read the full speech on the FCA website – in their defence it does state that many of the rules were put in place by the FSA and while they feel that there are too many it is not simply a case of tearing up the rule book and starting again. The are looking to base their work on the Principals primarily while looking to reduce the number of rules in place over time.

    But I am sure whatever is said the same few names will always call for the regulators to wind up and clear off….

  9. Hmm…where it all started to go wrong to me, was getting the lawyers to draft the rules, as it turns out in legalese, then putting all the rules in a mixing machine so what each sector wants is sprinkled unintelligably through thousands of pages.

    Looking back at the old FIMBRA and LAUTRO rulebooks – one may quite understandably debate how effective or not those institutions were overall, but at least you could read and understand the rules…..

  10. @Chipping
    If you wish the rules to be legally enforceable then who else but lawyers would you ask to draft them?

  11. In a separate article FCA has claimed that advisers suitability letters are too long. In this article the Chairman of FCA bemoans the fact that there are too many regulatory rules.

    I promise to reduce the length of suitability reports in proportion to the reduction in FCA rules.

  12. This is a really positive admission that I think deserves some praise. You cant regulate an entire financial system with the many thousands of firm types and models with just rules, it has to be principles based.

  13. @ MM – who says they are legally enforceable? The FOS?

  14. The fact is that those cases where the FCA has taken action, they where correct to do so. They have also lost cases I thought they should have one due to a lack of rules.

    I sometimes wonder, as since going directly authorised I have found the regulator to be helpful and non intrusive. We follow there guidance as best we can and get on with it.

    I’m not saying its perfect but it is an improvement on the FSA and a rule book so long you would die before finishing reading it, leave alone understanding it.

    The way I see it is do right by the client and you have very little to worry about.

    It must be Friday, I cannot believe what I have just written. Have a good weekend all.

  15. All this from a man who headed up KPMG !!

    Remember HBOS and CO-OP ? I wouldn’t give a job collecting chickens eggs !! sweeping up after them maybe ?

  16. Don’t have a particular objection to lawyers drafting them…..just in English please.

    And correlated.

    It would just help a little, not having to get another set of lawyers in to help decipher them.

  17. Increase in scrutiny on the part of the TSC has failed to stem lack of accountability on the part of the regulator.

  18. Grey Haired Underwriter 17th November 2014 at 11:52 am

    So many rules, so many contradictions, so little understanding, too much Regulation from a Regulator that doesn’t understand its own market! sigh

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