Regulating Conduct – Where should the burden fall?

12^th February 2015

It is concerning to read this morning of the decision to scrap the Financial Conduct Authority’s approved persons register and place the burden of regulating the conduct of individuals on the firms themselves, giving them primary responsibility for the fitness of all regulated staff.

Certainly the general shift towards a culture of personal responsibility and accountability is to be welcomed as we recognise the limits of regulation and the importance of virtue and character, in a post-financial crisis world.

However, besides concerns about the reversal of the burden-of-proof contained within the proposed regulation, there is a wider question about the burden-to-regulate. Does society trust a sector which so spectacularly failed to behave morally before, to self-regulate now? Is it proper to devolve responsibility for over-sight of professional conduct to the firms that they serve? Is this really the magic regulatory bullet that would have stopped Fred Goodwin in his tracks?

It is hard to see how rules which would turn financial services firms into ‘mini-regulators’ will actually create a climate of transparency, responsibility and moral leadership. It is not hard to fathom that whistle-blowers will likely experience the same problems as they do in the NHS, firms will develop attitudes of self-preservation where they hide or fail to record misconduct and the information sharing required to check backgrounds as people move in and out of different firms, countries and employment situations will not materialise.

As I have previously blogged, there is a critical and much-needed role for the FCA to maintain here. Using its scale and resources, it could award a professional qualification in the form of ‘licence to practice’ which they would be able to monitor and uphold. Such a proposal has recently been supported by the British Bankers Association.

Obviously such a regime would not stand alone. There is still room for more information-sharing, guidance, education and training to complete the puzzle of propriety within the city. Ultimately, there is a much wider discussion to be had about virtue in banking and what role it plays in contributing positively to society in order to restore the integrity of those who work in financial markets.

And so, in order to restore the public trust and confidence in the banking sector, surely an outward-facing instrument such as a public register would be a far more effective way of demonstrating that the industry is cleaning up and entering a new phase of transparency, humility and professionalism.

After all, industries and professions who have created public scandal, harmed the public interest and taken public money need to work publicly to restoring civic purpose to finance and honour to their profession. I fear that these new rules are just inward tinkering around the edges, rather than bold reform in the area of conduct.