In a speech given on 2 October 2018, FCA Chair Charles Randell explored the difficulty in getting the balance of regulation right and the conflict between social policy choices and an assessment of the quantitative evidence about cost and benefit. He highlighted the risks of deregulation, while admitting that increased regulation is not always the best solution. Randell compared the cycle of deregulation, crisis and regulation to Sisyphus who in Greek mythology was condemned to roll a rock up a hill, only for it to roll back down again before it reached the top. It was emphasised that this cycle should not be repeated.
Randell noted that deregulation can happen in a number of ways, most obviously by simply repealing rules. Another method is finding that new financial innovations are exempt from the existing rules, an example being sub-prime lending before the 2008 crash. He warned that, regardless of the form it takes, deregulation can lead to a financial crisis and consumer harm.
However, Randell conceded that not all regulation is good and that some rules are overly burdensome. There is a need to review the outcomes of existing regulation whilst also checking that the regulatory framework as a whole is cohesive. He spoke about various tools that regulators have to achieve their objectives. Regulators have more responses to a problem than simply making a new rule (for example, they can increase supervision of regulated firms).
Randell concluded by considering the lessons this gives rise to in relation to the post-Brexit regulatory situation: leaving the EU should not be used as an opportunity to join a race to the bottom on regulatory standards. Instead, the FCA should engage with international regulators to influence global regulatory standards. Randell emphasised the need for the FCA to seek a balance between a regulatory environment that is globally competitive and one that protects consumers.
With thanks to Michael Calladine for his help writing this alert.
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