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Mission critical: The FCA’s roadmap to better reguation


The FCA’s new mission statement may be “the missing piece of the regulator’s jigsaw”, but experts are questioning what impact it will have on how the watchdog works.

The regulator launched a consultation last week as part of chief executive Andrew Bailey’s plans to set out the FCA’s new “mission”.

The FCA wants the mission to clearly set out its remit and explain why it chooses to do the work it does. Central to the consultation are vulnerable customers, the FCA’s role in redress schemes and its approach to enforcement.

But will it distract the regulator from its already overloaded agenda? Bluntly, will this new FCA mission have any effect at all?

Taking a step back

The mission is seen by many regulatory experts as the missing piece in the regulator’s framework, bringing together its detailed handbook and its statutory objectives that are determined by Parliament.

Independent regulatory consultant Richard Hobbs believes the mission will give the market certainty on why the regulator decides on particular projects.

Hobbs says: “For some time the regulator has lacked an intellectually coherent framework for deciding what it does and what it doesn’t do. What the document makes clear is resources are finite and choices have to be made. You need a rationale for deciding what you do and don’t do.

“If you have a framework within which your actions are set, people will predict what you do and you end up with less uncertainty and that makes a better market. The principle of the thing is absolutely right.”

Bailey has already deflected claims the mission is a “political shield” that gives the regulator an excuse if it fails to identify market failures.


Speaking at a press conference in London last week, he said: “We could easily come across a situation where we make our choices, we explain how we set our priorities…and something else in the landscape goes badly wrong. That can happen because unexpected things happen and I would not then see this as a shield in the sense that, ‘you can never blame us for anything that goes wrong in the parts of the landscape we have not prioritised’.”

Law firm King & Wood Mallesons partner Tim Dolan says the mission consultation recognises the regulator cannot do everything for everybody. However, he questions how much discretion it has in determining its agenda and priorities.

Dolan says: “What will be interesting is what the ultimate impact of the submissions it receives will have. Fundamentally, the FCA still has to pursue an agenda that is set by Parliament. While it has a lot of discretion in terms of what enforcement cases it can bring, a lot of its function is outside its control.

“It has to authorise firms that apply, it has to supervise those firms and it has a broad responsibility to meet objectives around enforcement. It does not have as much discretion around what it can and can’t do from reading the document.”

Zurich UK Life regulatory developments head Matt Connell says the mission may help the regulator carry out its day-to-day work, rather than distract from it. He says: “Sometimes when you have a big backlog the best way to tackle it is to get your approach straight and then you can prioritise and decide what is important and what isn’t. If you just fight fires all the time then the backlog grows and grows because you are not prioritising properly.”

However, Connell says it is important the mission does not herald “micro-decision making” in areas where the FCA is already doing work.

He says: “You wouldn’t want the mission work to be second-guessing policy streams that are already up and running, like long-standing customers or vulnerable customers. It needs to set the priorities for those work streams but not second-guess where that policy is going.”

Dolan says the mission will not be a distraction for the majority of staff at the FCA who are focused on implementing the regulator’s work. However, he does question whether the Treasury or Government should be involved in the project, given the FCA’s objectives are set by Parliament.


Changing styles

As one of Bailey’s flagship projects since joining the regulator as chief executive in July, the mission is seen as an opportunity for him to stamp his authority on the organisation.

Pinsent Masons senior associate Michael Ruck says: “Bailey has come in and it is a good time to think about what the regulator wants to focus on going forward and how it wants to regulate.”

The document also differentiates Bailey’s approach from previous FCA and FSA bosses.

Hobbs says: “We have come from an era where [Bailey’s] predecessor said he would shoot first and ask questions later and his predecessor’s predecessor said ‘be afraid, be very afraid’.

“Bailey comes from a background of public policy and he knows what it takes to translate public policy into action. Neither Martin Wheatley nor Hector Sants before him, nor any chief executive of the FSA or FCA since inception had the public policy background to enable them to make that critical judgement about how public policy is best served by the action the regulator takes or chooses not to take.

“You won’t have any evidence of this being of any use whatsoever until some years down the track when Bailey is probably gone. He is putting in a key piece of the jigsaw they have never had.”

Connell says the mission cements the FCA’s approach as being less confrontational and more consultative than the FSA.

He says: “The style of the FCA when it was first set up was to emphasise the enforcement approach and a more confrontational approach. In the wake of the financial crisis and the FCA’s need to prove it meant business, there was an emphasis on enforcement. Perhaps the emphasis now is on talking to the industry about what works.”

The FCA is said to have more of a focus on consumer regulation than its predecessor, which is borne out in the mission.

Connell says: “The FSA was a rule-making regulator. The FCA went in a different direction and became a competition regulator looking at market studies and developing tools for consumers. That is a different approach when you are going away from mandatory information disclosure more towards behavioural economics. It is important for the FCA to set out how that works.”


Consultation crunch-time

The next challenge for the regulator is to get buy-in from the financial services sector on the mission. Its consultation runs until January 2017 and it also plans to hold regional visits, briefings and discussion forums.

Regulatory consultant and former FSA head of retail policy David Severn says it will be beneficial for the FCA to lay out its operational principles, but questions the motivation behind the consultation.

He says: “It is a useful primer on what concerns the FCA and how it operates but I’m not sure why the FCA is seeking views – it’s almost as though it wants reassurance it is doing the right things.

“At least it does give all stakeholders a chance to express their views on what the FCA should be doing more of, less of, or leaving alone entirely.”

Dolan questions whether meetings and roadshows are the best approach for getting firms on side with the mission.

He says: “What they need to be doing is sitting down and talking to firms but then that becomes more of a distraction. I would like to think they will wait to receive submissions and meet with a few parties but won’t do enormous roadshows. I have a feeling that might be getting hopes up too high because it is hard to deviate too much from what they are already doing.”

Ruck says a measure of the mission’s success will be whether it results in significant change in the coming years in how the FCA regulates and what it does.

He says: “If it results in the same approach that has been in place for the past few years – both from the FCA and FSA – there has to be a significant question asked as to whether this was a thing to be done at this time or whether it was a PR exercise on behalf of Bailey and the FCA. It may be trying to suggest they will change how they are going to [regulate] and the regulated industry buys into it, but nothing actually changes.”

Expert view: Matt Hodey

The FCA’s mission consultation, designed to provide a set of guiding principles underpinning its strategic direction and approach to day-to-day activities, reflects the numerous and significant challenges facing its traditional regulatory model.

In Andrew Bailey’s foreword, it is clear the central tenet of this keynote publication is to create a better understanding of the FCA’s remit, including the regulatory tools at its disposal, and to ensure this is well communicated and understood. This sends a strong signal the FCA is looking to engage in a very open process with its stakeholders. By setting out a framework that will drive its priorities, the regulator is also seeking to make itself more accountable for the choices it makes.

In a slight departure from the previous regime under Martin Wheatley, the FCA intends to take an output-based approach to measuring its performance. This will be based on a three-tier approach to measure its own performance against its objectives: delivering operational efficiency using a value for money framework; the impact of policy interventions; and outcomes on markets as a whole.

In essence, the FCA will be measuring itself by the same standard by which it expects regulated firms to be assessed, looking at the outcomes delivered through the lens of the decisions and choices it makes. In the consultation the FCA is also seeking views around what other criteria stakeholders think are central to measuring performance.

By releasing this consultation, the FCA is asking specific questions of stakeholders around the approach it should take to the way it regulates in the future. Its intentions around transparency and accountability should be welcomed by the industry. As should its focus on proportionality rather than zero-tolerance. Ultimately, the regulator’s conclusion is a world in which there are no bad consumer outcomes is unlikely and the cost of this level of regulation would outweigh the benefits of achieving this.

Instead, the FCA is seeking to help markets find ways to increase competition for the benefit of consumers and by doing so it is accepting its specific role in promoting innovation in the interests of the UK’s financial system.

Matt Hodey is strategy and markets director at The Consulting Consortium



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There are 3 comments at the moment, we would love to hear your opinion too.

  1. 1) Focus on problem areas.
    2) Stop making the good guys pay for the bad guys – the bad guys don’t care and they never will!
    3) Treat big institutions differently from one-man bands – big institutions employ good and bad people and they must be accountable for all of them.
    4) Prioritise the protection of retail investors.
    5) Ty to employ people at the FCA who actually give a damn – it isn’t just about career building!

  2. …is paved with good intentions.

  3. Shouldn’t any reformation of the FCA be driven first and foremost by the Statutory Code of Practice For Regulators (the Mk.I version, not the bowdlerised Mk.II version)? After all, it’s supposed to be the governing template for good regulation. Yet the FCA like the FSA before it has wilfully and consistently refused even to acknowledge its very existence (except to lie, in writing, to my MP that it does observe it). Without a firm commitment from Mr Bailey to comply with the Code, how can we have any faith at all in this new roadmap to better regulation?

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