Charles Randell speech at the Annual Public Meeting 2018

Speaker: Charles Randell, Chair, Financial Conduct Authority
Location: Annual Public Meeting, QEII Centre, Westminster
Delivered on: 11 September 2018

Highlights:

• Ten years on since Lehman’s collapsed, we still do not have a settled financial services sector.
• The FCA has tough choices about where to focus its attention and resources, particularly as the external environment develops and changes. 

Note: this is the speech as drafted and may differ from the delivered version.

Good morning and thank you for attending this year’s Annual Public Meeting. The FCA takes its public accountability duty extremely seriously. So, we appreciate your time today.

In terms of the running order, our priority this morning – as ever – is to respond to your questions and comments.

But before opening the meeting to the floor, we would like to provide a little background to this year’s Annual Report[1]. I’ll provide a brief introduction and then hand over to our chief executive, Andrew Bailey, who’ll go through the reporting period in more detail.

I would like to start this morning though with a couple of personal observations of the FCA from my first 5 months as Chair.

The first is this: it is an organisation that is strongly committed to delivering public value. And I’ll return to this point throughout my introduction. My second observation is a more general one around our response to the current operating environment.

This week marks the tenth anniversary of Lehman’s bankruptcy filing. The global financial crisis revealed problems in financial firms and their behaviour which have had a devastating impact on many people, including some of you here today. Ten years on from Lehman, the broad shape of new regulations is reasonably clear, but we are regulating a sector that changes year-to-year, even month-to-month.

Our Mission

That doesn’t make things easy, but last year’s Mission statement[2] gave us a very clear framework for prioritising work and resource, with a focus on protecting the most vulnerable customers.

It also established the FCA’s commitment to develop and refine its approach to deliver in the public interest. Meaning we are willing to learn from what works and what doesn’t.

Adaptability is essential to managing the depth and breadth of developments that we see today in financial services.

But as I say in my introduction to the Annual Report, we do have tough choices to make.

Adaptability is essential to managing the depth and breadth of developments that we see today in financial services.

We will also have to respond to factors that are not always under our control. And there are two that I particularly want to draw your attention to this morning. First, developments in international affairs. Second, the arrival of new technologies.

On the former, our business plan for the next year explains that we will continue to devote a considerable part of our resources to Brexit. In total, we have identified that we need an EU withdrawal budget of some £30m. A cost that covers work to achieve operational readiness for the UK’s exit. 

... the FCA has worked to deliver its commitment to public value by keeping to an overall budget that is flat in real terms.

I think it is important to say that meeting this funding requirement has required us to take difficult decisions elsewhere.

Nonetheless, I want to stress that the FCA has worked to deliver its commitment to public value by keeping to an overall budget that is flat in real terms.

Impact of technological developments

To my second point on developments in technology, we know that innovation in areas like big data and machine learning are a test of regulators’ abilities to adapt.

The FCA generally describes itself as ‘technology neutral’. Meaning we approach the regulation of individual technologies on their merit. And I think this is the correct approach.

Technology can obviously be enormously positive. It is now integral to delivering financial advice, products and services. It can help firms manage money laundering risks. It can also reduce market entry costs for new businesses, driving greater product differentiation and competition across the market. Ultimately supporting a greater proportion of society.

But new technologies also tend to create new risks. They expose more people to problems like online fraud and misuse of data. And we recognise that they can also leave some customers behind, particularly the most vulnerable.

So how we manage this double-edged sword is extremely important. 

The FCA’s approach has been to champion useful developments in FinTech and RegTech over the last five years. Giving firms support through Project Innovate and the opportunity to test new innovations in a controlled environment – the FCA’s Sandbox.

Early results from the Sandbox show that it is starting to provide the benefits we set out to achieve. Meaning it is helping new products to be tested effectively. It has also reduced the time and cost of getting innovative ideas to market. It has improved access to finance for innovators. And it has ensured that the right safeguards are built in to new products and services.

As you might expect, this positive experience has encouraged regulators in other jurisdictions to follow our lead.

But my hope is that the number of joint innovation programmes between different countries, both formal and informal, will grow. Partly because by collaborating we can respond better to the breadth and depth of developments in financial services. And partly because innovation on a global scale requires consistent standards. 

And this brings me to my final point. As financial services have become globalised, so has financial crime.

Our serious approach to financial crime

As I say in the Annual Report, whatever shape Brexit eventually takes, maintaining and deepening our partnerships with international regulators and law enforcement agencies will remain vital.

To give you a flavour of how significant our collaboration already is, at the start of the summer we had routed some 3.1 billion transaction reports, since January, to other National Competent Authorities. A process achieved via the European transaction reporting exchange mechanism.

And it is important to stress that we cannot manage the risks of financial crime successfully unless we can share data in this way. Data sharing provides both the UK and EU countries with a vital foundation to tackle cross-border market abuse, including insider dealing and cross-market manipulation. 

But the essential point is this: if we want to reduce the human costs associated with problems like fraud and money laundering, the UK is, and must remain, an inhospitable place for financial crime. And the FCA pursues this goal by operating an extensive programme of supervisory and enforcement work.

This means we work hard to strengthen the sector’s resilience to crime through our systematic anti-money laundering programme and awareness-raising around issues like fraud. And we also conduct a significant volume of enforcement work against firms and individuals. 

So, in the last reporting period, for example, we issued 269 Final Notices, including 248 against firms, and 21 against individuals. We imposed close to £70m in financial penalties. And our count of opened and closed enforcement cases also increased significantly year-on-year.

I am also encouraged by my first impressions of the organisation’s willingness to adapt and to prioritise public value.

My own opinion is that this work demonstrates the seriousness of the FCA’s approach to financial crime and other breaches of our rules. I am also encouraged by my first impressions of the organisation’s willingness to adapt and to prioritise public value.

I also want to stress the importance of our move to new offices in Stratford, which I see as an opportunity for the FCA to work differently. Especially in terms of becoming more streamlined so that we can deliver fair outcomes fast.  

So as Chair, I will work to make sure that the FCA Board supports this ambition. And we will challenge the FCA to build on its considerable achievements to be the best it can be.

Let me end with a thank you, in advance, for your questions today. I’ll now hand over to Andrew Bailey, who will provide more detail on this year’s Annual Report.