In the last 10 days or so there have been 3 important speeches from the FCA that, taken together and interpreting what might lie behind them, reveal an interesting picture of the FCA’s priorities and attempted direction of travel.
Two of the speeches were by Andrew Bailey, the FCA’s CEO - on Free Trade (with Brexit as a looming backdrop), from which I have taken the quoted text, and on the FCA’s challenges (consumer credit, long term savings and an ageing population). The day before the first of these came a speech by Exec Supervision Director Megan Butler, attempting to rebuild relationships with the asset management sector after a bruising market study process.
Without going into the detail of speeches that were each full of subtle sign posts and nuanced language, I’d make the following 5 observations and resulting inferences about what’s keeping the FCA awake at night. (The first draws on Andrew Bailey's 1st speech, on Free Trade; 2-4 on his 2nd; and 5 on Megan Butler's).
1.Observation: When regulators’ speeches go back as far as the Corn Laws, you know they are looking for acceptable ways to convey unpalatable messages. Inference: Regulators are a lot more worried about the impact of Brexit than they are directly saying.
2.Observation: The section on consumer credit covers multiple issues and is unusually detailed. Inference: There is considerable internal debate over the approach to consumer credit, with competing views from different areas of the FCA.
3.Observation: The FCA views long term savings as covering a range of sectors and is planning to publish a pension strategy later in the year. Inference: The regulator is finding this immensely complex, not entirely helped by its own structure. The pension strategy may be proving difficult and it wouldn’t be a shock if it rolled into 2018.
4.Observation: A brief summary of the FCA’s important recent paper on the Ageing population. Inference: Sadly, further work on this could easily be bumped by more “urgent” priorities.
5.Observation: A wide-ranging speech, carefully balanced but with a positive emphasis on the value of the sector and the announcement of an “asset management hub” for authorisations. Inference: The FCA wants to move on from the asset management study, and may be moving internally towards a more specialist sector-focused approach (and structure).
Of these, I suspect Brexit and consumer credit are what are sabotaging sleep the most, both consuming vastly more resource in practice than envisaged in the Business Plan and with no clear end in sight. These two areas, and the interplay between them, are likely to dominate the FCA’s discretionary activity for the foreseeable future.
The challenge for firms will be to understand the pressure the FCA is experiencing, and then anticipate the impact this will have on them.
It took the global financial crisis to finally lay this idea to rest. The crisis also reminds us powerfully that financial services carry risks which create severe externalities, which can be amplified by cross-border spillovers.