She said in her Mansion House speech on Thursday evening: “We are often told that boards are now spending the majority of their time on regulatory matters. This cannot be in anyone’s interests. If that continues indefinitely we will crowd out the creativity, innovation and competition, which should present the opportunities for growth in the future.”
McDermott said that the regulator needed to break the cycle of ‘regulate, de-regulate, repeat’. With this in mind, she suggested that the function of the regulator was three-fold: as referee, as policymaker and as a post-match commentator.
She said: “The first critical role of the regulator is to make sure that those we regulate play by the rules. And in this regard a good regulator…needs to be like a good referee. Constantly on the pitch, keeping up with what is going on, respected, fair and consistent. Tough where required. At the centre of the action without being the centre of attention.”
As a policy-maker, she said, the regulator should create the best environment in which to allow competition to take place. This means having a level playing field that does not advantage one participant over another, establishing boundaries that are clear, consistent and predictable but, within those, enable firms to innovate and develop new approaches and provide new services.
The final role for the regulator is to facilitate debate that analyses past performance and draws robust conclusions. She said this needed to involve: “Supporting and working with industry and other interested parties to try to find new solutions to old problems. Constantly challenging the industry to do better and pushing them to go further and faster in the quest for change.”
In a tacit admission that some regulation had not had the intended effect, she said: “Among the many good and rational changes that arise from crises, there will be some that don’t have the intended or expected impact. We should not be afraid to acknowledge that and make changes where required.” This needed to be balanced against periods where regulators once again start to believe the ‘three lies of finance’: this time is different, markets always clear and markets are moral.
