The Financial Conduct Authority (FCA) is “not in the business of picking winners”, its chief executive has said in a speech setting out the regulator’s outlook for innovation, competition and approach to Brexit.

Making the address at Bloomberg’s London headquarters this afternoon, Andrew Bailey outlined how the emergence of behavioural economics and insights from psychology have changed the regulatory debate on competition, and how authorities must balance the need to set rules for the public good with the demands of innovation and new technologies.

“It changes the set of remedies that we can apply, it leads to important debates for instance on the limits of informational tools and remedies,” he stated. “Thus, to give the obvious example of FinTech, we are neutral as to technologies and types of firms, and we are therefore not in the business of picking winners.”

Bailey also hinted that the FCA was aware of the potential for further regulation to consolidate the dominance of large financial institutions, noting that it is important that innovation and competition are fostered by the authorities.

“At the FCA, we think that a competition objective with supporting cost benefit analysis supports a competitive and successful financial sector – but, to be very clear, it does not and should not entrench particular business models.

“So if we are going to have the competitiveness debate, let’s please have it in a public interest framework that does not entrench the interests of incumbents.”

However, whilst he suggested that new thinking on competition had the potential to “re-shape” the nature of regulation, Bailey cautioned that “innovation has to be consistent with our public interest objectives”, adding that there was “no free pass to ignore these objectives”.

The speech came as the FCA published its response to a discussion paper on proposals for a duty of care on authorised firms, in which the regulator said it was ruling out plans for new consumer protection rules for the time being, after the plans received a lukewarm response from industry.

Instead, the regulator said it was minded to focus on revising existing rules to protect consumers across the financial services industry, whilst giving the recently implemented Senior Manager & Certification Regime - which places a statutory responsibility for regulatory oversight on directors - time to bed in and “prove its worth”.

Turning to Brexit, the FCA chief said the UK’s departure from the EU would “inevitably raise important issues for the future of regulation”, but was keen to emphasise that the FCA is neutral on the substance of Brexit.

“We have always been of the view that a period of transition is important to avoid the cliff edge risks of a no deal outcome, the extension of Article 50 is welcome in this regard, but we will need to continue to prepare for a full range of scenarios,” Bailey said.

However, he did foresee that the UK regulatory system would “evolve somewhat differently” once the UK leaves the EU’s regulatory umbrella and the country is “left to its own devices”, stating that the future relationship between EU and UK regulators would depend on the interpretation of "equivalence" of standards and approaches from both sides.

He said the UK's regulatory landscape “would I think take on board practical experience more rapidly, and it would be based more on principles that emerge from experience in public policy and somewhat less on detailed rules that can tend to become overly set in stone,” Bailey said. “To be clear, that is not a comment on the level of regulation, but rather the approach and the means.”

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