While regulations and guidance are important for securities regulators, noted Financial Conduct Authority Chief Executive Martin Wheatley, they become a blunt instrument if used as a substitute for good judgment and are not enough, in and of themselves, to regulate effectively. The FCA’s solution to this has been to use a broader array of judgment-based tools and techniques, including competition, behavioral economics and more sophisticated modeling, to get under the hood of the financial services industry and ensure that consumers in all financial markets are treated fairly. Mr. Wheatley delivered his remarks at the recent CFA European Investment Conference.
According to the Chief Executive, the FCA’s focus on conduct regulation means there is much greater regulatory emphasis on integrity and ethics in the
U.K. financial markets
today. Recognizing that culture is notoriously difficult to measure, let alone
change, the FCA is developing a deeper understanding of the sectors that it
regulates, and the consumer experiences within them. The agency is also probing
on sources of revenue, trying to divine how a firm makes its money. Similarly,
it wants to understand how a firm’s business model delivers against the
expectations of consumers.
The Chief Executive said that the FCA’s toolkit is more sophisticated and more in tune with the changing political and societal context. It is fair to financial firms, he continued, and reflects where the financial industry is now and where it is going. Mr. Wheatley believes that effective judgment-based, forward looking financial regulation should actually and ultimately translate into reduced enforcement activity and more confidence in the financial industry.
In earlier remarks, he indicated that the main duty or Government remit of a securities regulator is to ensure that the financial markets work well for all the market participants. He noted that the FCA has developed a forward-looking and judgment-based philosophy of financial regulation to ensure the well-functioning of the markets. The FCA will employ real time regulation and eschew box-ticking and regulation based on historic data collection. The FCA espouses regulation that is outcome-based and employs the tactic of early intervention.