The Financial Conduct Authority will reassess its conduct regulation in financial services after Britain has left the European Union, the regulator’s chief executive has said.
Speaking at the FCA’s annual public meeting this morning (July 17), Andrew Bailey said the future of conduct regulation was "on the table".
Mr Bailey said while the regulator did not take an ‘opinion’ on Brexit as a public body, it would use the opportunity to consider conduct regulation and would "consult quite broadly" on possible changes in the time to come.
The city-Watchdog boss there was still a problem with firms using rules as "box-ticking exercises" and warned any organisation that prioritised being within the rules over "doing the right thing" would not stand up to scrutiny for long.
Mr Bailey said, and Using Woodford’s stricken Equity Income Fund as an example, he said these firms "followed the letter, but not the spirit of the rules".
Woodford's flagship Equity Income fund was suspended on June 3 after a period of sustained outflows. The issue had been made worse by the fact it held unquoted assets, which Woodford listed on the Guernsey Stock Exchange to get around the Ucits rules which dictate how much in unquoted stock an open ended fund can have.
Mr Bailey had previously described the practice as "regulatory arbitrage".
Mr Bailey admitted regulation could have developed differently had the UK not been part of the EU and said the FCA would look at how this could progress post-Brexit.
The FCA will also look at how its regulatory scope – the ‘perimeter’ of what the FCA regulates and does not regulate – has caused and can cause consumer harm.
Mr Bailey said: "The perimeter is the common thread that links some of the most challenging issues we deal with – mini bonds, cryptoassets, funeral plans and GRG are all examples of this."
In a similar spirit, last month Mr Bailey told a Treasury select committee that one of the only ways to help mortgage prisoners (consumers stuck on high rates with unauthorised and inactive lenders) was to widen the scope of FCA regulation.
Inactive lenders currently fall outside of the regulator’s perimeter, as does the selling of mortgage loan books to such firms, meaning the FCA has had little power to react to the problems.
The regulator came to a similar conclusion when assessing whether it could take any action over Royal Bank of Scotland's support unit for troubled firms, the Global Restructuring Group.
A review found the FCA was unable to act on the shortcomings found in GRG’s restructuring of otherwise viable small businesses as its powers were "very limited" in this remit.
Mr Bailey said today that the FCA often saw examples of consumer harm taking place at the "blurry edges of the regulatory boundary" where "grey areas create opportunities for bad actors".
Another example given was that of London Capital and Finance’s sale of minibonds, which has hit the headlines lately after the Financial Services Compensation Scheme said it had detected "misleading advice" at the firm and that it could pay compensation despite the fact LCF fell outside the regulatory perimeter.