The Importance of Trust

Something I have heard time and time again from former regulators is the saying ” we trusted the bankers – they betrayed our trust so we now need to change the rules of the game”

Why were regulators surprised the bankers betrayed their trust? Surely they knew that certain human beings had become “incentivised to cheat”. This incentivisation in the form of bonuses and stock options should have been a key consideration in designing regulatory monitoring programmes designed to focus on the key pressure points.

I sincerely hope that principles-based regulation is not replaced by rules because bankers cannot be trusted.

Principles allow companies to design control processes in a way which meets the demands of the nature, scale and complexity of an organisation. It is then up to the organisation to prove to the regulator that it did its best to operate within the spirit of these principles.

Does the regulator accept at face value that the organisation will comply? Of course not. The regulator develops a programme which assess “incentivisation to cheat” and becomes increasingly intrusive the greater the risk of being misled.

I hope this is the philosophy within the FSA. I am not sure that this is what we are seeing elsewhere on the planet (for example in “ban short selling land”