Posted: 9th May 2013
Welcome to the new regulatory era. The Financial Conduct Authority (FCA) is certainly keeping its promise to be more proactive and intrusive, making its presence known across the industry through demanding thematic reviews and requests for information. There is, however, a more subtle change in the FCA’s approach, detectable through its publications.
After the flurry of documents at the beginning of the month, the relative lull for now gives the industry a chance to digest the risk outlook and business plan 2013-2014 – and digest it should. These key documents take a new approach to analysis and presentation of conduct risk. The result is a notably more sophisticated analysis with a keen eye on the interrelationship between retail and wholesale, internal firm risks, regulation, market risks and the behaviours they encourage in firms. This is, of course, to be welcomed; but the change means a simple list of the top 15 conduct risks is a thing of the past.
Discussing customer, firm and market behaviour – in the form of behavioural economics – may well become part of business as usual in the retail financial services. Along with its core documents, the FCA has published its first occasional paper exploring and encouraging academic debate on aspects of financial regulation. Whilst not directly reflecting the views of the FCA, such papers will stoke new thinking, ideas and hopefully inspiration for an industry working hard on restoring public trust. Again, this sophisticated approach to financial services regulation and market behaviour must be welcomed and will provide competitive advantage for those firms that engage.
The industry’s increased workload means the change in regulator is having an impact, but reflection on the detail of publications coming from the regulator must go hand in hand with increased action on regulatory compliance. As Mark Twain said “a classic is something that people praise, but never read.” The industry must ensure the FCA does not publish too many classics in the busy new era.