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“The country needs to develop a philosophy of risk…and not beat ourselves up about the inevitable failures along the way.” So says Andrew Griffith, City Minister, in relation to the future shape of financial regulation. Much depends on what the “inevitable failures” turn out to be.
The Edinburgh reforms have heralded a wide debate around the future shape of financial regulation in the UK. Described variously as Big Bang 2, the greatest rewrite of financial regulation since the financial crisis or a regulatory race to the bottom, what the final effect will be only time will tell. But the messages coming out of government, the regulator and the City are not as aligned as they could be.
Celebrating our post-Brexit freedom by ripping off the shackles of EU regulation has obvious political capital. And the current message from the government, as set out in Andrew Griffiths’ speech, is that we need to develop a greater risk-taking culture.
Not surprisingly, it would seem the regulators don’t agree. The sheer volume of communications from the FCA – particularly around the new Consumer Duty – is surely indicative of an increasing worry of risk to consumers. Firms are failing to put consumers first, buy now pay later poses unacceptable risks, investment scams are on the increase, AML failures continue, and lack of financial advice is a growing concern…
The City appears to be taking a sensible middle road. Of course losing the ability to operate freely in the EU has been detrimental over recent years. But global economic conditions have also had their part to play. The message from the industry seems to be that a growing global economy supported by a strong regulatory environment is what is needed to boost the City’s fortunes. Let’s reduce rules where it makes sense to do so but don’t deregulate for the sake of it.
Far from allowing us to be lighter and more agile, ripping up the EU rules will create a huge amount of work for the industry – as well as the regulators. Thousands of EU rules will need to be transcribed into the UK regulators’ own handbooks.
Even as the future direction is yet to be worked out, in-house compliance resources are already stretched. Requirements around consumer duty, appointed rep reforms and SDR disclosure as well as keeping on top of day-to-day obligations mean there is little capacity to deal with wholesale regulatory change.
And the list of new challenges coming over the horizon is getting longer: simplified advice, retail disclosure requirements, short selling, a review of SMCR, crypto regulation and potentially a new regulatory regime for asset managers.
It doesn’t sound like an environment to embrace a risk-taking culture.
‘View from the Chair’ is Bovill’s regular column from our Executive Chair Ben Blackett-Ord who founded the firm in 1999 and led it as CEO until 2022. Ben continues to support Bovill’s executive team and clients, as well as being a prominent figure in the industry.
