Regulation – supporting vibrant markets: a speech by Martin Wheatley, CEO of the Financial Conduct Authority, 2 June 2015

In his speech at the Future of Financial Services event in London, Mr Wheatley discusses how innovation, competition and regulation can be effectively managed to benefit both consumers and businesses. Mr Wheatley argues that we need effective regulation that protects consumers but which doesn’t stifle innovation, because innovation creates competition in business which is beneficial to consumers and businesses alike.

In the past, global financial businesses were run to suit the firms themselves and there was a dislike of excessive regulatory intervention. Now firms are much more open to accepting regulation, particularly in light of the 2008 financial crisis. However, one of the key issues for the FCA to consider in the introduction of any new regulation, is ensuring that it does not stop London and the UK from being an attractive place to set up business. The FCA does not want regulation to stifle competition in the financial sector as currently there is a lack of competition in some sectors, for example in banking.

In fact, 80% of customers in the UK, bank with just four providers and this has led the FCA to get behind a drive to open up the UK’s financial markets and help consumers have more choice and engagement with their financial service providers. Since 2013, 14 new banks have been authorised, partly because the barriers for firms wishing to open new banks have been reduced and because the FCA has gained powers to investigate breaches of the Competition Act ,which helps pave the way for innovative new firms to come into the market.

It is this increase in innovative new firms that the FCA believes will give consumers more choice in the financial services industry, and this will lead to greater understanding and consumer confidence about financial products. In the past, the lack of completion and a misunderstanding of complex financial products had led consumers to make bad financial decisions ie. payment protection insurance. For too long the consumer has been misled by complex pricing strategies and hidden fees. The FCA is working with firms to look at behavioural economics, or the mechanisms that drive customer choice, and it is trying to understand what makes consumers make poor financial decisions. There needs to be improvements to customer engagement as ultimately, by opening up the financial markets, encouraging innovation and encouraging incumbent banks to make financial information simpler and engage with their customers more frequently, consumers and businesses would be in a better position.

One sector of the financial services industry that is trying to embrace the idea of simplifying financial information for customers is the fintech space. Some opponents argue that this could lead to increased cybercrime, but most in the industry see the potential in opening up the arena for new and innovative ideas that will ultimately benefit the customer. This is why the FCA does not want the UK to be seen as an unhelpful place for new businesses from a regulatory perspective. In light of this, the FCA’s Innovation Hub has been created to give support to innovators in helping them find ways to work with the regulatory rules yet not stifle what makes them innovative. Innovative firms, it seems, are keen to engage with consumers.

Older firms are now too seeing the benefits of positive engagement with the consumer as they have learnt that one of the contributing factors to long-term profitability and growth is gaining the trust of your customers. Effective regulation restores consumers’ trust in the businesses they use. If consumers know that firms have accountability to them for the services they provide, they feel confident in the choices they make.

Ultimately, for the financial services industry to evolve and progress, firms have to find innovative ways to positively engage with consumers and be open to appropriate regulation in order for consumers to feel confident in their financial choices.

In the legal industry too, clients are increasingly looking at new ways to source legal advice and the traditional approach of using one law firm for all their legal needs is becoming out-dated. At Cleveland & Co we believe that clients should have a choice about the kind of legal services they want, and how they want those services delivered in an increasingly competitive market. Like the innovative fintech firms and new banks, we positively engage with our clients and listen to them; we are always seeking new ways to benefit our clients.

If you would to find out more about our innovative legal advisory services please do get in touch, Cleveland & Co, your external in-house counsel, are here to help.


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