A sustainable approach to regulation which breaks the “regulate, de-regulate, repeat” cycle is critical to its continued success, according to the FCA’s acting chief executive Tracey McDermott.
Speaking at the City Banquet at Mansion House on 22 October, Ms McDermott said this goal would be achieved when regulators, firms and individuals alike changed the way financial services operate.
“If we look at the history of regulation we see an unloved model,” she told the Lord Mayor and his guests, describing it as often coming in “bursts of activity after crisis or scandal, followed by periods where regulation is less visible and less intense”.
While this has produced some important and enduring reforms, Ms McDermott warned that regulators must learn lessons from past mistakes, with two main risks apparent.
“The first is that regulatory phases become locked into feedback loops with economic ones. The appetite for reform reduces as the economy recovers, we start to believe that we have conquered the challenges and become complacent, this creates the potential for new risks to build up in the system and for new strains of financial shock in the future.”
The second risk is that “as memories fade, and things improve, we forget the lessons of the past.”
Ms McDermott said the financial crisis, and the conduct failures which subsequently came to light, has had far reaching effects.
“They highlighted fundamental errors made by both firms and regulators, they identified deficiencies in the regulatory framework and structure, and they called into question some of the most fundamental aspects of fair dealing and integrity for which London’s financial markets are known.”
She also conceded that implementation of post-crisis reforms has been and continues to be, a challenging task, but added that the FCA was starting to see some light at the end of the tunnel.
Adviser view
Julian Stevens, principal of Bristol-based Harvest Financial, said: “Doesn’t the regulator always claim to have learned from its mistakes and promise to do better going forward?
“But this time, with the Treasury in charge of the agenda instead of leaving the regulator to do whatever it likes, the FCA may just have to do better.”
