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FCA points to Hayne inquiry as trust problems persist

A leading UK regulator says the Hayne royal commission provides the latest example of misconduct issues that continue to undermine trust in the sector worldwide.

“The financial crisis of a decade ago, and the subsequent revealing of serious conduct problems in too many areas of financial services, has without doubt severely damaged any sense of trust,” Financial Conduct Authority CEO Andrew Bailey said.

“And that process is not over in all areas – witness the royal commission in Australia.”

Mr Bailey says trust in financial services has changed from the pre-1980s era when executive remuneration was kept to limited multiples of average pay, with greater levels viewed as ostentatious and breaking a societal norm.

“I would go further and argue that this formed the basis of trust, with the expectation of future behaviour and a common value or ethic,” he said at the launch of the St Mary’s University School of Business and Society in London.

Later changes emphasised business owners’ interests and pay was used to incentivise performance, while light-touch regulation reflected a view that if businesses succeeded the public interest would benefit.

“It didn’t work out that way, and in the wake of the crisis we have had to change the approach to regulation in the public interest,” he said.

Recent banking regulation changes in the UK put more weight on individual responsibility and accountability, Mr Bailey says.

“It is no surprise that in the wake of the financial crisis the question was asked, to what extent are we regulating firms and to what extent the individuals in them, and particularly senior management? The answer is both, but with a shift of emphasis towards individuals.”