October regulatory reflections

FOUR TAKEAWAYS FROM THE LAST MONTH

1.????The FCA is getting a new Chair (and less stability)

Whoever succeeds Charles Randell as FCA Chair next spring will find it hard. By contrast with the Bank of England, no Chair of the FCA or FSA has done more than five years, while CEOs have rotated even faster. As a result, the regulator has experienced frequent shifts in direction, rhetoric and (sometimes) priorities, often with little time or investment before the next change.

They will arrive in the midst of a “Transformation” programme that involves a major restructuring and a ￡120mn data strategy with big ambitions, but which has reportedly prompted considerable staff unhappiness and increased turnover. In the circumstances, we would be naive not to anticipate some collateral damage, even if only transitory, to the quality of regulation. It’s a high risk strategy to inherit, with (so far) only a broadly drawn vision of the intended destination.

2.????It’s too soon to declare success on Covid

Much of regulation is a long-term enterprise; the policy cycle can easily be plus five years from formulation to implementation, and at least another two before it’s reasonable to evaluate effectiveness. With the regulators’ emergency Covid measures, the formulation and consultation processes were necessarily compressed, in the latter case often to only a few days.

Given the context, this was almost certainly the right approach, but it inevitably increased the risk of unintended consequences and we should wait before declaring success. Now that the immediate crisis seems over and the temporary measures have unwound, it’s all the more important to focus on long-term impact, whether of the FCA postponing customer repayments or of the PRA’s guidance on IFRS 9.

3. Pension mis-selling could become a running sore

As a reminder of the potential long-term fallout from a rushed policy process, the legacy of the pension freedoms' regulations (accelerated at HMT's behest) shows no sign of disappearing.

The current strategy of relying on customer complaints has a patchy track record and is running into trouble; British Steel pensioners, the highest profile victims, are unhappy with the approach and their MPs are already calling for an inquiry. However, there is no easy solution and alternative approaches, such as a dedicated in-house unit, also have drawbacks.

4. Regulation of crypto likely to become a major issue

The FCA's Perimeter Report devoted considerable space to crypto but, as yet, it hasn't requested a scope extension to allow it to tackle the area more strategically. Given the almost exponential growth of crypto investing, especially among the young, and the regulator's self-confessed inability to supervise Binance, this is surprising.

More broadly, the growth of crypto raises issues for the Bank of England and prompted a concerned speech by one of its Deputy Governors. Regulators are moving quickly by their own lights, but developments such as Facebook's pivot to "Meta" indicate a change of gear might be necessary.

I also publish a?weekly regulatory update. If you found this interesting,?sign up?to receive it direct into your inbox each week.

For more useful insight and expertise we’ve developed a?regulatory hub for financial services?to ensure you stay informed.

Don’t forget our monthly financial services regulatory update webinar is now a podcast!?Subscribe and listen to the podcast now?where David Morrey and I dissect what’s really happening in the world of regulation. I also host ongoing episodes with Irina Velkova on the latest developments with industry experts.

The UK regulatory handbook 2021 is an indispensable guide to the regulatory landscape for financial services. You can now download the handbook for 2021?here.