‘Finance watchdogs need to end roller coaster rulemaking’
LONDON, October 23, 2015
Bank regulators need to break out of a loop where rules are tightened up after a crisis and relaxed too much when times are good, the boss of Britain's financial watchdog said on Thursday.
Tracey McDermott, acting chief executive of the Financial Conduct Authority (FCA), said the finance industry was starting to see some light at the end of the tunnel after facing a wave of new regulations since the 2007-09 financial crisis.
"I do not think I will get much argument in this room when I say that the intensity and volume of regulatory activity over recent years is not sustainable," she said in a speech to a banking industry dinner in the City of London.
Her comments provide more evidence that a crackdown on the banking industry after the crisis is coming to an end.
Britain's finance minister George Osborne has already promised a ‘new settlement’ with banks and last week scrapped plans to treat senior bankers as ‘guilty until proven innocent’ in terms of employee misconduct and regulatory breaches.
But McDermott highlighted the pitfalls of going too soft on the industry.
"The danger is that a sensible and intelligent desire to reduce unnecessary regulation leads the pendulum to swing too far in the other direction."
She said the challenge was to develop a sustainable approach to regulation.
"We become caught in a loop where we regulate, de-regulate, repeat on an infinite cycle," she said. "And if we do that, if we take too big a step back when things are going well then history suggests we will fail to anticipate and prevent the problems of the future."
McDermott, whose hardline predecessor Martin Wheatley was ousted by Osborne, cautioned about too much push back.
"To be effective as a policymaker we need therefore to be prepared to review our work. To look at rules which are not working and be prepared to change them."
She said regulators must pay attention to past mistakes, especially as memories of the crisis fade. They must also still be ready to take unpopular decisions even when the economy is picking up.
"History is again instructive. Regulators have too often allowed issues to grow in size and importance when rapid action may, although unpopular, have prevented much larger problems."
A sustainable approach to regulation, which breaks the regulate, de-regulate, repeat cycle is critical to that, she said. - Reuters
