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FCA chief: Pace of regulatory change ‘unsustainable’

Tracey McDermott FCA 700x450.jpg

The volume of regulatory change in recent years is “unsustainable”, says FCA acting chief executive Tracey McDermott.

In a speech at Mansion House last night, McDermott said the pace of change is unsustainable for regulators and for the industry, and threatens to stifle innovation.

She said: “We are often told that boards are now spending the majority of their time on regulatory matters. This cannot be in anyone’s interests.

“If that continues indefinitely we will crowd out the creativity, innovation and competition which should present the opportunities for growth in the future.”

McDermott says there has always been bursts of regulatory activity after a financial crisis.

McDermott said there are two main risks with this model: the first is that regulatory phases become locked into economic ones, creating the potential for risks to build up in the system as the economy recovers. And the second is that the lessons of the past are forgotten as market conditions improve.

She said: “The danger is that a sensible and intelligent desire to reduce unnecessary regulation leads the pendulum to swing too far in the other direction.

“We become caught in a loop where we regulate, de-regulate, repeat on an infinite cycle. And if we do that, if we take too big a step back when things are going well then history suggests we will fail to anticipate and prevent the problems of the future.”

McDermott said while the regulator can play a part in escaping this cycle and delivering “sustainable” regulation, only the industry can make it happen.

She went on to say that a good regulator should be like “a good referee”.

She explained: “Constantly on the pitch, keeping up with what is going on, respected, fair and consistent. Tough where required. At the centre of the action without being the centre of attention.”

McDermott said the FCA must be prepared to review its work and change rules if they are not working.

As an example of this she cited a consultation published yesterday which proposed removing certain disclosure requirements.

And she said a sustainable model for regulation requires the FCA to take earlier action to prevent growing problems “more often than we have done in the past”.


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There are 6 comments at the moment, we would love to hear your opinion too.

  1. Nice speech Tracey, don’t let the door hit you on the way out.

    Its funny to think, many people have deep regrets or an admittance of getting it wrong, when coming to the end…… still fear not, I hear the office juniors at PWC, KPMG etc etc etc are keeping the toilet seats warm for you, that’s of course after a few months in the garden at our clients expense !

    Good referee ? a Scottish rugby player and fans have good reason to feel cheated in the Australia game, I feel cheated every single day !

  2. Forgive me for pointing it out yet again, but aren’t these remarks directly contrary to Linda Woodhall’s defiant proclamation that on her watch “there’ll be no loosening of regulation”?

    That said, it’s pretty obvious that a rule book that must by now be well past 10,000 pages is largely un-policeable. I know of DA firms who’ve not had a compliance visit in 15 years and, within the bounds of the law and sound business practice, carry on much as they ever did.

    The FCA needs to find ways of identifying, prioritising and taking swift, effective action on potentially untoward activities before they blow up and become industry wide motorway pile-ups. And that doesn’t just mean shooting first and asking questions later (what a silly sound-bite). The FCA needs to ask the questions first and then act swiftly and appropriately on the answers it receives. Typical examples are:-

    1. the mis-selling of PPI on an industrial scale (now costing the banks and their shareholders billions of pounds, not to mention the damage this is inflicting on the industry’s reputation) and

    2. firms selling UCI Schemes without PII coverage to do so (now costing the rest of us hundreds of millions of pounds in additional FSCS levies).

    These are fundamental failures on the part of the FCA to prioritise the policing of its own rule book.

    Dreaming up ever more t’s to be crossed and i’s to be dotted in suitability reports for a straightforward investment portfolio of £50,000 is, I suggest, a distraction from the really big problems towards which the FCA ought to be prioritising its attentions.

    And then, of course, there are the pointlessly burdensome RMA Returns, the contents of which nobody at the FCA ever examines. They serve no useful or practical purpose that I can see. They’re just another regulatory imposition for its own sake and JG-J’s description of them as “pragmatic” is plain garbage. Why, for example, don’t they ask questions as simple as: What, if any, potentially high risk classes of business have you transacted over the past year, do you have appropriate PII cover to do so and/or the appropriate regulatory permissions? Isn’t that simple and obvious (those two words yet again)? Wouldn’t the vast majority of practitioners support such straightforward reporting requirements? Wouldn’t that enable the FCA to prioritise its resources appropriately (as recommended by the Statutory Code of Practice for Regulators)?

    Where the FCA goes from here needs to be about prioritising its resources (because, as David Owen once said: If you try to prioritise everything, you end up prioritising nothing) and adherence to the Code (which is Statutory and thus the Law).

  3. The FCA needs to modernise. A.K.A. Innovate. Not to mention get to grips with the world as it now is, not as it was or they wish it to be.

    Until they do they will continue to do at least as much damage as good and will remain costly and unsustainable – in more ways than one.

  4. I think Julian has written exactly what I wanted to say but far more elegantly than I could have done!

  5. So does that mean a reduction in regulation at some point.

    I doubt it.

  6. You haven’t seen anythin’ yet: Just wait until you get inundated with frivalous, meritlress complaints generated by a new and rapidly accelerating proliferation of so called Claims Management Companies who will throw everything and anything at advisers, and then on to the FOS at absolutely no cost to themselves!
    Watch this space as the FOS try to grapple with more and more complex cases (usually pensions related), whilst attempting to retrospectively interpret the FCA rule book and numerous other regulatory regimes while the advisers have to fund and fully comply with all of their FCA complaints procedures, and have to pay for that as well!

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