Financial regulation at a crossroads

In his final speech as interim Financial Conduct Authority CEO, Chris Woolard urged the UK to seek a new regulatory model.

In his speech to the International Financial Services Forum, Woolard said the Coronavirus pandemic combined with changing business models, technology and consumer expectations have come together to pose a series of challenges that has left financial services regulation at a “cross-roads”.

Woolard is to leave the FCA this month in order to carry out a review of regulation.

It is clear that the current regime is not working as well as society, business and regulators need it to.

The Covid-19 pandemic has accelerated the adoption of technology for both financial services firms and consumers, leading to a vast increase in scams that the current regulatory regime is unable to handle.

Pension savers have lost £30m to scammers since 2017 and a recent Freedom of Information request found that the FCA is currently probing more than 150 Coronavirus-related scams.

The FCA’s 4,000 strong staff handles 204,000 calls from consumers and firms and 500,000 data submissions, receiving and monitoring 38 million market transactions a day, according to Woolard.

The levies placed on financial services firms under the current regulatory regime are also rising to unsustainable levels. One financial planner recently shared on Twitter how his FSCS costs have risen over 90% this year. Whilst the FCA has frozen its 2020/21 fees for small firms, it is expected that the pandemic could force up compensation costs and hit firms hard without major reform.

Brexit also poses both challenges, and the opportunity for the UK to review what type of financial regulation it needs for the future.

UK government and the financial services sector need to work together to define what kind of regulation we want, thinking realistically about what tools are available and how they should be used. There also needs to be a rethink about how financial regulation is funded, providing predictability and certainty to financial firms rather than the exponential levy rises currently being seen.

Communication needs to be a key part of this reform process. Without clear consultation with financial services markets there is the risk that whatever system is developed may be worse than what it is replacing.

It also needs to be made clear to the general public what they system does, and does not, deliver. Education is key. They need to know what protections they do have and be properly educated as to the risks they run.