Follow Us

Follow us on Twitter  Follow us on LinkedIn
 

25 January 2012

FSA Martin Wheatley: My vision for the Financial Conduct Authority (FCA)


In a speech given at the BBA, future FCA CEO Wheatley focused on regulation in future, and movement away from a reliance on orthodoxies that have failed. He explained the cultural change that is needed in firms and at the regulator, and looked at how the new model may work in practice.

"In considering all of this, it’s important to understand what’s going to be at the heart of the Financial Conduct Authority (FCA), and that is getting a fair deal for consumers. It is clear that there is need to move on from where we have been over the past few years. What was visible seven years ago was the fallout from the split capital investment trust saga, and with pensions and endowments mis-selling still fresh in the memory.

These were all significant failures – and significant not just in the sense of financial loss, but also in the sense of people’s confidence in the financial system. In 2011 it was already a different world, one of:

  • state bail-out for banks;
  • major institutional failures; and
  • significant reform programmes underway.

The regulatory model had failed – not just in the UK but  globally.  The standard orthodoxy – from JM Keynes through to Alan Greenspan and others – was that people make rational decisions when given sufficient information; that markets are self-correcting organisms; and, from a regulatory rather than an economist’s perspective, that if you oversee the distribution channels – banks in many cases – the right products get to the right people. All three orthodoxies failed.

First, people did not make rational decisions.  They bought products they did not understand (structured products); assumed the future would always be like the past (house prices); and allowed others to do the homework, which they blindly followed (credit ratings). Second, markets did not self-correct – or at least not in the short enough time frame to prevent substantial losses. Third, the regulation of firms was not able to overcome the inherent conflict of interest that arises in financial transactions.

How to start to move the model forward?

Culture in firms, from product governance to sales, has to be aligned with the best interests of customers. But this is not all about regulated firms. Consumers of course have a role to play, and a cultural change at the regulator is needed as well. The FCA will need to ask tougher questions, and they need to be the right ones, if we are really going to discover what lies at the heart of firms’ successes and failures. The FCA then needs to make better, bolder, faster decisions. And the FCA must also be much more open, engaging and clear with you.

Views on this are developing, taking into account the implications of the new world, and how things such as the draft objectives and powers the government has proposed could work. Getting this right is absolute key. The changes in regulation offer a great opportunity for a better relationship and to rebuild consumer trust."

Full article



© FSA - Financial Services Authority


< Next Previous >
Key
 Hover over the blue highlighted text to view the acronym meaning
Hover over these icons for more information



Add new comment