Senior financial services experts have backed warnings from Treasury committee chairman Andrew Tyrie of “regulatory overload”.
Speaking in a Westminster debate on the Financial Services Bill last week, Tyrie warned the FCA and the Bank of England risk being overwhelmed by the Government’s legislative agenda and said regulators could be powerless to prevent the next financial crisis.
Tyrie said the Government’s reforms – including the pension freedoms and the introduction next month of the senior managers regime – are placing “huge demands” on both the Bank and the FCA.
He said: “We may be close to the point of regulatory and supervisory overload. By that I mean the Government and Parliament could be raising expectations of what they can achieve to a point where they will never be perceived to have succeeded.
“We need to ask just how much national regulation can achieve in an open financial world. The truth is: perhaps not that much, and certainly less than many people think.”
EY senior adviser Malcolm Kerr says: “The warning lights are definitely on amber, and not green at this point.
“If you think about it, the market has been saying the same things for quite a long time, and saying they have been finding it difficult to react to everything taking place.
“If that’s now the case at the FCA level, it could create even more demands on firms like providers and advisers if the regulator needs to find a way to ease the pressure.
“The motives are entirely appropriate but that doesn’t mean the level of regulation has to be constantly increasing.
“Maybe there are more efficient ways of regulating the market, but it does appear at the moment more regulation doesn’t necessarily equal better regulation.”
Former FCA board member Mick McAteer says the increased size and complexity of the UK’s financial services market makes it harder to regulate than ever before, while expectations of the regulator remain unadjusted.
He says: “There have been major successes in the post-crisis era. It’s silly to argue that there hasn’t been a big improvement, and the regulator has become more effective as well.
“But they will never meet expectations because people want it to be perfect and don’t understand how complex the reality really is.
“You can maybe have perfect regulation if you throw 10 times the amount of resources at it, but I’m not necessarily sure that is what people want, and the FCA might well then be accused of overregulating.”
I have a lot of sympathy for the workload that the FCA has on, and the same applies to the amount of work required of regulated firms.
Regulators and the Government, and indeed the EU commission, need to stop and think about the amount of change being imposed and the compliance costs associated with that.
For example, Mifid II is sucking up a lot of time and resource from firms and regulators, despite being a matter that is largely out of their control, while there is also a lot of UK change for them to address.
I do not think that workload has ever been as intense as it is at the moment.
And it comes about because we are still dealing with regulations and measures brought about as a consequence of the financial crisis, while at the same time looking at new things linked to a more consumer-focused approach.
One alternative would be to explore a return to principles-based regulation, which is something the FSA looked at, but it fundamentally did not work properly. It was too generic and we need to keep things prescriptive, so all sides need to make sure the speed of change is thought through.
Tim Dolan is partner at KWM
Pete Matthew, managing director, Jacksons Wealth Management
The FCA faces such a varied workload and there is so many different elements to financial services, from massive multinational corporates dealing in multiple jurisdictions and currencies to little old me down in Penzance.
The only way of dealing with that is more people, and that is far from a solution that anyone in the industry would be happy with. So maybe we need to talk about regulating products instead, and self-regulatory aspects for some of the safer parts of the financial services community, because I do not see how any one body can deal with such a broad range of different topics.