In focusing his last speech as head of the Prudential Regulation Authority more on the future than his time in that particular hot-seat, Bailey sent an important message.
Far from business as usual, it seems that once Bailey takes up the reins on 1 July he intends to crank up the scrutiny level, particular in terms of what he sees the ‘culture’ within firms.
“Culture has a major influence on the outcomes that matter to us as regulators,” Bailey said. “My assessment of recent history is that there has not been a case of a major prudential or conduct failing in a firm which did not have among its root causes a failure of culture as manifested in governance, remuneration, risk management or tone from the top.”
“Culture has thus laid the ground for bad outcomes, for instance where management are so convinced of their rightness that they hurtle for the cliff without questioning the direction of travel,” Bailey continued. “We talk often about credit risk, market risk, liquidity risk, conduct risk in its several forms. You can add to that, hubris risk, the risk of blinding over-confidence.”
It is a bold move to effectively accuse the industry you will be working with of ‘hubris’ before you get your feet under the desk, and this boldness could be instructive.
"It is a bold move to effectively accuse the industry you will be working with of ‘hubris’ before you get your feet under the desk, and this boldness could be instructive"
Bailey and others at the FCA may well see his appointment as a line in the sand on the post financial crisis period, and as such an opportunity not to be missed.
It is important to remember how the FCA began life. It started when the Financial Services Act 2012 came into effect as a phoenix from the flames of the ultimately disastrous Financial Services Authority.
In a sense, during the time between 2009 and now the FCA (or FSA) has been scrambling in a game of catch-up to restore both its self-confidence and the confidence of the public, politicians and the firms it regulates.
When an organisation clearly fails in spectacular fashion to fulfil its key purpose - namely ensuring the stability of the financial sector and protecting the public – it takes more than a name change to repair itself (it was not even a full name change, they only replaced the middle word; services).