Out-Law News | 22 Oct 2019 | 10:45 am | 3 min. read
The UK’s Financial Conduct Authority (FCA) is to issue an invitation to firms and stakeholders for “thoughts and ideas” on the future of its regulatory model in a bid to make itself “fit for the age we’re in”.
FCA executive director of strategy and competition, Christopher Woolard, told a London event focusing on the future of regulation that the FCA was moving to a different way of operating, focussing less on rules and more on outcomes.
Woolard said as well as asking the public for its opinions on the future of regulation, the FCA would publish a number of detailed papers, including an analysis of future market dynamics, a discussion paper on its principles, and a consultation paper on the duty of care.
The speech follows an announcement earlier this year by UK chancellor Philip Hammond of a "major, long-term review" of the UK's regulatory framework for financial services.
Andrew Barber, financial regulation expert commented "The FCA’s desire to seek comments from stakeholders and the wider public on its approach to regulation is to be applauded. It is interesting that this will be driven through the lens of focusing on the outcomes of regulation, given the current approach of increased disclosure doesn’t seem to have driven the market improvements the FCA wants."
Woolard said there were five steps towards shaping the future of regulation. The first was “to clearly state what outcomes we want to see in markets”. Woolard said if the FCA was explicit about the outcomes it was aiming for, the public would be better able to judge if it was doing its job.
He added that the regulator’s sector views document and business plan next year would be more outcomes-focused than in the past.
The second step, Woolard said, was for the FCA to use everything which was available in the “regulatory toolkit”, while also thinking about cost effectiveness in delivering outcomes.
“In recent years, we have used our tools and powers more creatively in things like the Senior Managers Regime, Project Innovate and price caps,” he said. “Nonetheless, we must face up to the fact that disclosure has been the go-to solution of regulators and politicians in the UK and Europe for the last 20 years, making up the bulk of our requirements. But behavioural economics suggests its impact is limited.”
Woolard said the FCA would continue to increase its engagement with other agencies “to think about the right outcomes, rather than each body delivering narrow solutions in respect of their mandates”.
He said the FCA would look at its principles to see if it could use the principles so as to be clearer about its expectations for firms, and acknowledged that small businesses in particular suffered under the volume of rules.
Woolard said that small firms have difficulty navigating the FCA's Handbook, and "struggle to understand how FCA regulation applies to them", so the FCA hopes to "simplify and streamline" its rules in its Handbook Review and will "consider things like requiring firms to ensure consumer understanding" as part of its review of the principles.
Woolard said that gave "the opportunity…to bridge the information asymmetry between customers and providers."
“Much of our Handbook is technology neutral, and we have enabled innovation over the last few years. But our rules feel increasingly analogue in a digital world,” he said. A new approach to the use of technology could enable the regulator to provide solutions that meet customer needs, he said.
Barber said: "Even if the FCA does focus more on the outcome being customers understanding of their options, greater reliance on technology on its own will not resolve this problem. For one, the FCA laments the impact regulation currently has on small firms. But expecting such firms to build technology solutions for their business simply shifts the cost elsewhere and will also have an impact on their ability to compete with larger players".
Woolard said it was essential to have agile financial regulation that did not become outdated. “It is only right for us to constantly assess the direction of travel and tailor our approach to ensure we continue to deliver on our objectives,” he said. “By putting outcomes at the heart of the debate in the coming months we want to ensure financial services markets serve the public interest, now and in the long term.”
Barber said that clarity was needed about what, or whose, outcomes the FCA will focus on? "For some segments of the market the outcome a customer 'wants' from a product may be very different to that expected by the regulator or the financial services industry. In those circumstances is the consumer's understanding of their options and then making an informed choice going to be a satisfactory outcome in the FCA’s eyes?"
"If it is, there needs to be an acknowledgement that some customers may still make a poor choice. Alternatively, if the outcome is solely the performance of the product or service, are we moving towards a more commoditised, purely utility approach to financial services?" he said.
"The FCA’s consultation is likely to show there are a range of issues for them to tackle if they are to make a success of this change in their regulatory focus," Barber said.
25 Jun 2019