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”.