UK’s Wheatley talks tough on financial market intervention

The UK's new Financial Conduct Authority (FCA) will have the confidence to intervene early in cases of wrongdoing, based on a "new culture" of data-gathering in specialist areas, according to Martin Wheatley, managing director of the Financial Services Authority and chief executive-designate of the FCA.

Wheatley stressed the new regulator would not hesitate to intervene in cases where the integrity of the financial system was under threat. "If we are to achieve our objectives, we will often need to act early and decisively," he said. "We will demonstrate courage in our convictions, but be flexible enough to adapt our views if we learn something new."

Achieving this, Wheatley said, would require not just a change in the culture of markets, but also of his regulators. "Our staff will have to display a new FCA way of doing things – a new culture, if you like," he said. This new culture would be based on asking questions and gathering data in "specialist areas" to identify the root causes of poor conduct.

Wheatley said securities market participants could expect scrutiny in a wider range of areas. "What this new approach means is that firms should expect to deal with the FCA in areas that regulators have not historically looked at," he said.

The FCA would also intervene in wholesale markets and work to improve the process for the return of client assets in the event of a firm's failure. Wheatley said the FCA would be working to ensure a "level playing field" across markets, which could potentially mean greater intervention where there are differences in power, knowledge or skills.

In wholesale markets, the regulator would be particularly concerned with behaviour that could have knock-on effects for retail consumers, or where poor conduct could damage the integrity of markets and the reputation of the UK as a place to do business, Wheatley said.

Wheatley added the FCA will also consider ways of strengthening client asset rules, with the aim of increasing the speed assets are returned in the event of a firm's failure and the proportion of assets recovered, while minimising the wider market impact.

"These questions do not have simple answers," Wheatley said, adding: "While we are committed to a fundamental review, we must acknowledge that as a regulator, we can only do so much." He explained that due to the structure of UK insolvency law compared with the US, some factors would be outside the FCA's control.

Nevertheless, "securing the adequate protection of client money and assets is going to be critical to the FCA delivering on its objectives of market integrity and consumer protection", Wheatley said. "Client asset protection will remain a regulatory priority, but we need a sensible debate about the best way to achieve it."