Blog: Alan Hughes: Chair’s parting shots pierce FCA future – Money Marketing

On 20 May the outgoing Chair of the FCA, Charles Randell, made a speech that was surprising in its almost overtly political nature and which addressed a number of key points which could indicate the future direction of travel for the role of the FCA and regulation in the financial services sector over the next few years and how that interacts with the government of the day.

The first interesting statement made concerned “…the gap which often exists between people’s real-life experiences and the liberal theories that have shaped financial regulation”.

These are “theories that giving people more information is enough to protect them from harm; that the market always adapts to provide essential financial services to vulnerable people at an affordable price; and that self-regulation can be made to work if only the incentives are right”, he went on.

Future financial services regulation

What can we glean from this?

This clearly signposts a more interventionist regulator that wants to take a more prescriptive approach.

This is framed within the context of the current government’s policy of “levelling up” and the view that the “liberal theories” referred to do not work for the most vulnerable and so the focus must change if levelling up is to be delivered.

Mr Randell goes on to refer to the FCA’s partnerships with others, including government, giving examples of where such partnerships have worked well, and where they haven’t.

Government criticism

In the latter case Mr Randell specifically refers to the Pension Freedoms of 2015, indicating that the FCA and other stakeholders were not given sufficient input or time to prepare for those reforms.

As a result, he goes on: “The policies and procedures necessary to mitigate the potential harm to consumers from the pension freedoms were still being retrofitted six years later.”

“Retrofitting” sounds remarkably like “retrospective regulation” and we all know who usually ends up paying the greatest price for that….

FCA and bitcoin

Mr Randell then moves on to the government’s stated aim to “….consult on a world-leading regime for the crypto-market, including the trading of tokens like Bitcoin.”

Whilst acknowledging the potential for the underlying distributed ledger technology (DLT) and certain genuine “stablecoins” to produce efficiencies in payments payments transactions and other parts of the financial system, Mr Randell openly challenges the desire to facilitate trading in the likes of Bitcoin and other highly volatile cryptoassets.

His appeal appears designed to encourage a prominent role for  the FCA in shaping the proposed regime, rather than the government deciding upon the nature and scope of the regime and then compelling the FCA to implement it.

I have to say that I share his concern around the speculative trading of volatile cryptoassets.

Given the nature of that market and his reference to the fact that such assets have “ underlying value..” and are “…an increasingly attractive conduit for organised financial criminals and money launderers..”, attempting to regulate it in a similar way to mainstream investments may be misguided.

Mr Randell’s sounds like a warning shot from the FCA against being set up to fail.

Future Regulatory Framework

This is quickly followed by a thinly-disguised swipe at the government’s proposals under the Future Regulatory Framework.

Mr Randell clearly sees this as reducing the independence of the FCA, which will in turn reduce its effectiveness and international standing as a regulator.

In particular he is concerned about the proposed powers for the government to intervene in the FCA’s processes, including the power to direct the FCA to review areas of its rules and submitting FCA policy proposals to advance scrutiny.

Mr Randell seeks reassurance that such powers will only be used in genuinely “exceptional circumstances”, and warns against such circumstances becoming “surprisingly frequent”.

He is also raising fears that the mere existence of this process could result in government being lobbied by “…vested interests who want to bypass our [the FCA’s] public interest objectives of protecting consumers and promoting competition, using politicians to get the rules changed in their favour.”

There are almost certainly situations where regulated firms may have welcomed such intervention in the past, for example when it appeared clear to those in the advice sector that something was going badly wrong, but the FCA did not appear to be acting quickly enough to limit the damage, for which the good guys then end up footing the bill.

It may be, however, a case of being careful what you wish for.

A regulator which has to bend to the will of the government of the day and other vested interests risks being required to flip-flop between issues and priorities on a relatively short term basis according to the political winds of the day, and in doing so will be prevented from developing coherent long term policy and objectives.

The FCA is far from perfect, but this could result in an even more ineffective regulator.

Charles Randell chose to stand down from his post a year early, and perhaps only a departing Chair could afford to publicly set out such forthright views on the government’s plans for the future of the regulator and its role in implementing government policy. 

Alan Hughes is a partner at Foot Anstey

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