The FCA currently faces multiple challenges. Brexit remains a primary focus due to the protracted preparations for a new regulatory relationship with the European Union, while the December rollout of the Senior Managers & Certification Regime means that corporate culture and governance also stand front and centre. Alongside this, technological change, innovation and the use of personal data in the interests of consumers continue to feature as the industry evolves.
The FCA’s concern over issues around unsuitable pension transfer advice, pension misselling and fraud means it has indicated it will prioritise supervision of both defined benefit to defined contribution transfer advice and advice on high-risk investments.
It will also have a particular focus on the treatment of vulnerable consumers, while dealing with issues such as the £236m collapse of London Capital & Finance in January.
Add to this the recent volley of new regulation to hit our industry, the greatest in 20 years – Mifid II, Priips, GDPR, the Insurance Distribution Directive et al – and one can easily see why heads have been spinning, especially in the compliance space. So what does the future hold?
In his recent speech at Bloomberg, FCA chief executive Andrew Bailey raised some interesting insights into his vision for the regulator’s future output. Among them is the fundamental difference between the UK and European legislative systems, and how this will inform the FCA’s attitude towards regulation going forward and post-Brexit.
Assuming that we do actually leave the EU – yes, there are still doubts in some quarters – huge amounts of both regulation and legislation will have to be “onshored” into UK law.
The UK has contributed to and defined a great percentage of this over the past 40-odd years, but the FCA has made a rethink of financial regulation a priority for the year ahead. Drawing on the different traditions and effects of the English common law and continental code law systems, Bailey argued that, post-Brexit, the FCA would be freed up to re-examine the value and effectiveness of an outcomes-focused, rather than rules-based, regulatory approach.
He proposed that the common law system was better-suited to this method, that it was not accidental the big wholesale financial markets had grown in common law jurisdictions, and that principles-based regulatory thinking was both facilitated by the common law framework and conducive to outcomes-focused designs.
He indicated that rules could help to achieve common outcomes and that principles were the key to bridging any rules/outcomes gap.
So even if the UK were to diverge, post-Brexit, from the type of regulation used in the EU, the tools would be there to manage this divergence, create predictability and maintain equivalence.
The sum would be UK and EU alignment, and no reductions in British regulatory quality (having set the benchmarks for the vast majority of EU financial regulation, this was never likely), but a lowering of the regulatory burden on UK-regulated firms. Nirvana? Perhaps.
But the Prudential Regulation Authority and Bank of England have joined the FCA in dismissing a return to the light-touch approach adopted before the financial crisis, which Bailey described as a “rising-tide-lifts-all-boats” view of the world that had been discredited.
While they have yet to agree publicly on going down the outcomes road, it could, however, happen. Watch this space.
Liz Field is chief executive at Pimfa