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John-Griffith Jones, Financial Conduct Authority Chairman, delivered a speech at the CASS Business School, London, on ‘Regulating in a Recovery’.
“I want briefly to visit the Rules versus Principles debate. The FCA has eleven principles, and probably eleven thousand detailed rules. It is a fact that in all the major enforcement cases that it has successfully taken over the past five years, the breach committed related directly to one of the eleven principles.
As far as I am concerned, the principles are therefore here to stay. The question is how many rules do we need as well? I instinctively believe that less is more, on the twin grounds that (A) we have made a great many rules already but they don’t seem to prevent further problems arising, and (B) what starts as an attempt to provide clarity frequently ends up creating complexity.
We need continuous improvement. Structure, clarity and effectiveness are essential to getting the existing regulatory model to work well, but they are not future proof in themselves. Improvement may take many shapes, and none of us are clairvoyant. Technology for example is driving rapid change in what is possible, both for firms and for us. But there is one new objective given to us as the FCA, of which I have considerable expectations. This is our competition mandate.
It is the case that in many parts of the financial services industry there are natural economies of scale. Add to these the desirable barriers to entry that the regulators have added in the interests of protection, and the less desirable ones caused by the complexity of complying with the rules, and it is not surprising that we find ourselves with some very significant oligopolies, not just in retail banking. And whilst there is clearly competition between the participants within these protected spaces, it is by no means clear that it always results in benefits to the customer as opposed to the reallocation of the not inconsiderable rewards to the players.
It will be the role of the FCA with our newly created competition department, the new Payment Systems Regulator and of course the Competition and Markets Authority (CMA), to determine whether competition policy can be effective as a better long term tool of regulation, rather than the short term palliative of the incremental rule.
We regulators have a big job ahead of us, but modest as compared to the changes required of some of the firms we regulate. Their future behaviour will shape the future of regulation, and over time they will get, from Parliament, the regime they merit.”