During a speech at the FCA's annual public meeting on Wednesday 17 July, Andrew Bailey (the Chief Executive) commented that the Woodford fund suspension is an example of what happens when firms prioritise “being within the rules rather than doing the right thing…Rules are a crucial mechanism for delivering outcomes, but can also be interpreted so rigidly as to become a box-ticking exercise. This is a lesson we want to see reflected in firm behaviour — any organisation that prioritises being within the rules over doing the right thing, will not stand up to scrutiny for long.”
As Caroline Binham in the FT today (17 July) points out, his comments come as investors still cannot access their cash in Woodford’s Equity Income Fund, which suspended redemptions last month.
However, more broadly, Mr Bailey's comments may hint at an underlying paradox facing FCA regulated firms and the regulator itself. Mr Baily expects that firms will comply not just with the letter but the spirit of the law too. This seems a laudable and sensible view, and is being codified by the FCA in the new Senior Managers and Certification Regime coming in to force in December 2019. But, if we take that view, how do firms know what is actually expected of them if their being told its insufficient to follow what's written in the rules? Doesn't this mean that the FCA is both having its cake and eating it? They insist firms follow the rules stringently, but even doing so is not necessarily any defence from their enforcement. And ultimately, who is going to determine what is within and without the spirit of the rules? And what rules are they going to use to make that determination? I suspect we all know the answer to that already.